One-month and three-month Treasury bill rates ended the week at 15 bps. Two-year government yields declined 4 bps to 0.98%. Five-year T-note yields fell 3 bps to 2.56%. Ten-year yields declined 6 bps to 3.88%. Long bond yields dropped 6 bps to 4.74%. Benchmark Fannie MBS yields dipped 3 bps to 4.54%. The spread between 10-year Treasury and benchmark MBS yields widened 3 bps to 66 bps. Agency 10-yr debt spreads narrowed one to 35 bps. The implied yield on December 2010 eurodollar futures dropped 7.5 bps to 0.815%. The 10-year dollar swap spread declined 3 to end the week at negative 1.5 bps. The 30-year swap spread declined 2 to negative 19.25. Corporate bond spreads were mixed. An index of investment grade bond spreads widened 2 bps to 87 bps, while an index of junk spreads narrowed 9 bps to 490 bps.
It was another strong week of debt issuance. Investment grade issuers included Ford Motor Credit $1.75bn, Lorilllard Tobacco $1.0bn, Boston Properties $700 million, SBA Tower $550 million, Valmont Industries $300 million, Avery Dennison $250 million, Senior Housing $200 million, Gulf Power $175 million, Worthington Industries $150 million.
Junk issuers included Freescale Semiconductor $1.4bn, Valeant Pharmaceuticals $400 million, Lamar $400 million, Nexstar Broadcast $325 million, Radiation Therapy Services $310 million, Magnachip Semiconductor $250 million, Manteck International $200 million, Meritage Homes $200 million, Lin Television $200 million, American Resident Services $165 million and NFR Energy $150 million.
I saw no convert issues.
International dollar debt sales remain robust. Issuers included Mexico $3.25bn, Ontario $2.0bn, Royal Bank of Canada $1.5bn, BRFKREDIT $1.3bn, Credit Agricole $1.25bn, Aiau Unibanco $1.0bn, and Credito Real $150 million.
U.K. 10-year gilt yields jumped 12 bps to 4.04%, and German bund yields rose 8 bps to 3.16%. As the Greek debt crisis took a turn for the worst, bond yields surged 61 bps to 7.14%. The German DAX equities index added 0.4% (up 4.9% y-t-d). Japanese 10-year "JGB" yields increased 3 bps to 1.38%. The Nikkei 225 gave back 0.7% (up 6.2%). Emerging markets were mixed. For the week, Brazil's Bovespa equities index gained 0.4% (up 4.1%), and the Mexico's Bolsa gained 1.7% (up 5.4%). Russia’s RTS equities index increased 0.2% (up 12.9%). India’s Sensex equities index gained 1.4% (up 2.7%). China’s Shanghai Exchange slipped 0.4% (down 4.0%). Brazil’s benchmark dollar bond yields dropped 11 bps to 4.86%, while Mexico's benchmark bond yields rose 16 bps to 5.04%.
Freddie Mac 30-year fixed mortgage rates jumped 13 bps to a 34-wk high 5.21% (up 34bps y-o-y). Fifteen-year fixed rates rose 13 bps to 4.52% (down 2bps y-o-y). One-year ARMs jumped 9 bps to 4.14% (down 64bps y-o-y). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed jumbo rates jumping 12 bps to 5.95% (down 46bps y-o-y).
Federal Reserve Credit dipped $0.6bn last week to $2.290 TN. Fed Credit was up $220bn, or 10.6%, from a year ago. Elsewhere, Fed Foreign Holdings of Treasury, Agency Debt this past week (ended 4/7) increased $4.8bn to a record $3.025 TN. "Custody holdings" have increased $69.2bn y-t-d, with a one-year rise of $403bn, or 15.4%.
M2 (narrow) "money" supply declined $11.7bn to $8.491 TN (week of 3/29). Narrow "money" has declined $21.6bn y-t-d. Over the past year, M2 grew 1.5%. For the week, Currency added $0.3bn, and Demand & Checkable Deposits increased $0.5bn. Savings Deposits declined $4.7bn, and Small Denominated Deposits fell $4.9bn. Retail Money Funds declined $2.8bn.
Total Money Market Fund assets (from Invest Co Inst) dropped $18.4bn to $2.964 TN. In the first 14 weeks of the year, money fund assets have dropped $329bn, with a one-year decline of $882bn, or 22.9%.
Total Commercial Paper outstanding dropped $19.6bn last week to $1.090 TN. CP has declined $80.4bn, or 25.5% annualized year-to-date, and was down $444bn over the past year (29%).
April 6 – Bloomberg (Daniel Kruger and Matthew Brown): “The fastest growth in global currency reserves since the credit crisis is blunting a rise in Treasury yields even as concern increases about record U.S. borrowing to finance an unprecedented budget deficit. Worldwide reserve assets climbed 18% to $7.8 trillion in the 12 months ended in March…”
International reserve assets (excluding gold) - as tallied by Bloomberg’s Alex Tanzi – were up $1.162 TN y-o-y, or 17.4%, to a record $7.855 TN.
Global Credit Market Watch:
April 9 – Bloomberg (Jana Randow): “European Union officials said they are ready to rescue Greece if needed as Fitch Ratings cut the country’s credit rating to the lowest investment grade and economists at UBS AG said that a bailout may be imminent. Germany restated its opposition to below-market rate loans to Greece as officials in Brussels hammered out details to the framework calling for joint EU-International Monetary Fund aid.”
April 5 – Wall Street Journal (Mark Gongloff): “Credit markets have staged a comeback. Now, too, it seems some of the exotic securities that were hallmarks of the credit bubble are having a small renaissance of their own. The rally in the corporate-bond market and a steady supply of easy money courtesy of the Federal Reserve are encouraging investors to take more risks. And Wall Street bankers and companies are taking advantage where they can. Some of the riskier borrowing practices that flourished at the height of the bubble have begun to find buyers. Among them: so-called pay-in-kind bonds that enable companies issue more debt as interest payments, rather than pay cash. Companies are also issuing bonds to pay big dividends to their owners…. Some firms are also trying to pull together bonds backed by mortgages that aren’t guaranteed by the government.”
April 9 – Bloomberg (Bryan Keogh): “High-yield, high-risk bonds make up the biggest share of corporate debt sales on record as investors wagering on a robust economic recovery snap up securities from even first-time issuers. Global sales of junk bonds total about $91 billion this year, or 12% of issuance, almost double last year’s share…”
April 5 – Bloomberg (Doug Alexander): “Corporate bond sales in Canada doubled in the first quarter to the highest in almost two years… Firms… issued C$21.6 billion ($21.4bn) in bonds in the first three months, compared with C$10.4 billion a year earlier…”
April 5 – Bloomberg (Bryan Keogh): “Bonds with built-in protection against rating cuts are making up a record share of debt issues as investors hedge against a slowdown in the economic recovery. Anheuser-Busch InBev NV… is among companies issuing so-called step-up bonds, whose interest increases if a borrower is downgraded. Sales surged to $37.3 billion in March, or 12.4% of all debt issued…”
Global Government Finance Bubble Watch:
April 5 – Wall Street Journal (Jon Hilsenrath): “The Federal Reserve’s decisions to keep interest rates near zero and to flood the financial system with credit are sparking fears of an eventual outbreak of inflation. But inside the Fed, an influential band of policy makers is fretting over the opposite: that the already-low rate of inflation is slowing further. The presidents of the New York and San Francisco regional Fed banks, William Dudley and Janet Yellen, see the abating inflation rate as convincing evidence the economy still is burdened by excess capacity and needs to be sustained by the Fed… ‘When unemployment is so high, wages and incomes tend to rise slowly, and producers and retailers have a hard time raising prices,’ Ms. Yellen, who is expected to… become the Fed’s vice chairman, said… ‘That’s the situation we’re in today, and, as a result, underlying inflation pressures are already very low and trending downward.’
April 9 – Bloomberg: “China’s finance ministry plans to start selling 200 billion yuan ($29bn) of bonds on behalf of local governments this month and complete the offerings by June 30, three bankers with knowledge of the plan said…"
The dollar index dipped 0.3% this week to 80.90 (up 3.9% y-t-d). For the week on the upside, the Australian dollar increased 1.6%, the Japanese yen 1.5%, the New Zealand dollar 1.4%, the British pound 1.1%, the Mexican peso 0.9%, the Canadian dollar 0.8%, the Singapore dollar 0.8%, and the Norwegian krone 0.6% For the week on the downside, the Swiss franc declined 0.5%, the Swedish krona 0.2%, and the euro 0.1%.
The CRB index was little changed (down 2.6% y-t-d). The Goldman Sachs Commodities Index (GSCI) gained 0.8% (up 3.3% y-t-d). Spot Gold jumped 3.7% to $1,161 (up 5.8% y-t-d). Silver gained 2.8% to $18.40 (up 9.2% y-t-d). May Crude added 8 cents to $84.95 (up 7.0% y-t-d). May Gasoline declined 1.5% (up 11.5% y-t-d), while May Natural Gas was little changed (down 27% y-t-d). May Copper added 0.2% (up 7.3% y-t-d). May Wheat rallied 2.4% (down 14% y-t-d), and May Corn increased 0.4% (down 16.6% y-t-d).
China Bubble Watch:
April 6 – Bloomberg: “China’s economy may grow 12% in the first quarter, the China Securities Journal reported… citing Fan Jianping, head of the economic forecast department of the State Information Center.”
April 9 – Bloomberg: “China’s passenger car sales rose 63% in March as government stimulus policies helped boost demand for vehicles in the world’s biggest vehicle market. Sales of cars, multi-purpose vehicles and sport-utility vehicles rose to 1.26 million units… First-quarter sales jumped 76% to 3.52 million units…”
April 6 – Bloomberg (Candice Zachariahs): “China’s foreign exchange reserves face a ‘triple whammy’ as a decline in the U.S. dollar and Treasuries and possible inflation in the longer run erode the value of its savings, said Yu Yongding, a former adviser to the People’s Bank of China… ‘There is no question whatsoever that the U.S. dollar will go south in the long run,’ he wrote. ‘Unless the U.S. economy improves its trade balance, the dollar will fall. But the U.S. cannot improve its trade balance unless the dollar falls.’”
April 6 – Bloomberg (Le-Min Lim): “A painting by Liu Ye sold for HK$19.1 million ($2.5 million) at a Hong Kong auction, the most for a Chinese contemporary artist in two years, in a sign prices are returning to pre-credit-crisis levels.”
April 5 – Bloomberg (Jason Clenfield): “Workers at Japan’s biggest companies used to count on two things: a job for life and a decent pension. Guaranteed lifetime employment in Japan is long gone after four recessions in two decades forced companies to restructure. Now another pillar of the social contract may be crumbling as companies such as Japan Airlines Corp. slash pension plans.
April 8 – Bloomberg (Unni Krishnan): “India’s food inflation accelerated for a second straight week, increasing pressure on the central bank to raise interest rates. An index measuring wholesale prices… rose 17.7% in the week ended March 27 from a year earlier.”
April 9 – Bloomberg (Vipin V. Nair and Tushar Dhara): “India’s passenger car sales gained at the fastest pace in six years to a record… Car sales rose 25% from a year earlier…”
Asia Bubble Watch:
April 8 – Bloomberg (Barry Porter): “Malaysia’s economy is firmly on the recovery path and may grow faster than forecast, central bank Governor Zeti Akhtar Aziz said… ‘The Malaysian economy is projected to grow in the region of 5% with further upside potential,’ Zeti said.”
Latin America Bubble Watch:
April 5 – Dow Jones (Alastair Stewart and Rogerio Jelmayer): “Brazil motor-vehicle sales hit a March record, driven by economy-stimulating tax breaks and a booming economy… Sales rose to 353,738 units last month… 60.1% higher than February and 30.3% higher than March 2009…”
April 5 – Bloomberg (Fabiola Moura): “Brazil’s next government needs to develop the local debt market to help companies finance investment and reduce dependence on the state development bank, said Rio de Janeiro State Finance Secretary Joaquim Levy. BNDES, as the… lender is known, lent a record $72 billion in 2009, bank President Luciano Coutinho said last month.”
April 6 – Bloomberg (Bill Faries): “Argentine automobile sales rose 36.8% to 56,497 units in March from a year earlier, the Argentine Association of Car Dealers said…”
April 5 – Bloomberg (Daniel Cancel and Corina Rodriguez Pons): “Venezuela raised government-set price caps on milk and dairy products today as much as 30% in an attempt to boost benefits for producers and head off shortages of basic goods.
Unbalanced Global Economy Watch:
April 9 – Bloomberg (Greg Quinn): “Canada added 17,900 jobs in March, fewer than economists predicted… The unemployment rate was unchanged at 8.2%...”
April 8 – Bloomberg (Jennifer Ryan): “U.K. house prices advanced in March at the fastest annual pace in 2 1/2 years as low interest rates boosted demand… Halifax said. The average cost of a home rose 6.9% from a year earlier to 168,521 pounds ($256,000)…”
April 8 – Bloomberg (Chris Bourke): “Prime office rents in the City of London financial district rose 14% in the first quarter from the previous three months as companies competed for a dwindling amount of high-quality space, Cushman and Wakefield Inc. said.”
April 7 – Bloomberg (Simone Meier): “Europe’s economy unexpectedly stagnated in the fourth quarter… Gross domestic product in the 16-nation euro region remained unchanged compared with the third quarter, when it rose 0.4%...”
April 9 – Bloomberg (Simone Meier): “Exports in Germany, Europe’s largest economy, rose the most in eight months in February as a strengthening global economy boosted companies’ orders. Sales abroad… rose 5.1% from January…”
April 7 – Bloomberg (Maria Levitov): “Russia’s trade surplus for the first two months of the year more than doubled to $34.4 billion on a jump in exports… The surplus rose $18.9 billion from the same period last year… The country exported $58 billion of goods in the period, a 60.3% increase from the first two months of 2009…”
Central Bank Watch:
April 6 – Bloomberg (Michael Heath): “Australia’s central bank raised its benchmark interest rate to 4.25% and signaled further increases, dismissing warnings that higher borrowing costs are already eroding consumer spending.”
Real Estate Watch:
April 6 – Bloomberg (Oshrat Carmiel): “U.S. apartment rents dropped in the first quarter and the vacancy rate remained at a record as unemployment near a 26-year high limited tenant demand. Actual rents paid by tenants… declined 1.5% from a year earlier, Reis Inc. said…Vacancies were unchanged at 8%, the highest level since 1980…”
April 5 – Bloomberg (Brian Louis): “Office vacancies in the U.S. rose to the highest level since 1994 in the first quarter as economic weakness reduced demand for commercial real estate space, according to Reis Inc. The vacancy rate climbed to 17.2% from 15.2% a year earlier…”
April 6 – Bloomberg (Christopher Palmeri): “Los Angeles Mayor Antonio Villaraigosa called for shutting down ‘nonessential’ city services two days a week, after Controller Wendy Greuel said the municipality’s cash may run out next month.”
New York Watch:
April 5 – Bloomberg (Michael Quint): “The state of New York’s history of budget manipulation is contributing to its chronic deficits and cash squeeze, Comptroller Thomas DiNapoli said. ‘New York needs to stop playing games with the deficit,’ DiNapoli said… By shifting money between accounts in a ‘fiscal shell game,’ state officials and lawmakers ‘cover cash shortfalls and avoid making the difficult decisions needed to align spending with revenues,’ DiNapoli said.”
April 8 – Bloomberg (Michael Quint): “New York lawmakers resumed talks to close a $9.2 billion deficit in the state’s overdue spending plan with its bonds trading as if they were no more risky than before the budget impasse. Governor… Paterson told a WNYC radio interviewer yesterday that ‘we are literally running out of money.’ Within an hour, at least $2 million of state bonds backed by sales tax traded to yield 1.98%, or 0.06 percentage point more than rates of other AAA rated muni debt. That gap has narrowed by half from two months ago. ‘People are saying we’ve seen this before, and no matter how ugly the budget process is, the state will pay its debt,’ said Richard Larkin, a senior vice president at Herbert J. Sims & Co… The deficit has grown from $7.4 billion since Paterson’s budget proposal in January…”
April 6 – Bloomberg (Bei Hu): “Global hedge fund assets may return to the pre-financial crisis peak of almost $2 trillion by year- end… according to a Credit Suisse Group AG survey of investors. Industry assets may grow 25% from the $1.6 trillion at the end of 2009…”
“I first recall learning of these super senior positions in the Fall of 2007… I learned that Citi’s exposure included $43 billion of super senior CDO tranches. The business and risk management personnel advised that these CDO tranches were rated AAA or above and had de minimis risk. My view, which I expressed, was that… these CDO transactions were not completed until the distribution was fully executed. That said, it is important to remember that the view that the securities could be retained was developed at a time when AAA securities had always been considered money good. Moreover, these losses occurred in the context of a massive decline in the home real estate market that almost no financial models contemplated, including the ratings agencies’ or Citi’s.” Robert Rubin, April 8, 2010, Financial Crisis Inquiry Commission (quoted by Reuters).
Mr. Rubin’s comment yesterday, “AAA securities had always been considered money good,” inspired my dive into a little money and Credit theory. Over the years, I’ve offered up the concepts of “moneyness of Credit” and “Wall Street Alchemy” as key factors nurturing the U.S. Credit Bubble. “Moneyness” is essential for a protracted Credit expansion. And Wall Street’s capacity to transform endless risky loans into trusted AAA securities was fundamental to the spectacular boom and bust.
First, a few definitions:
Credit: The creation of new liabilities/IOUs/financial claims that introduce additional purchasing power into the financial and economic systems.
Money: A “precious” financial claim; the very best Credit, perceived as a safe and liquid store of nominal value. “Money” is inherently dangerous because virtually insatiable demand creates a propensity for over-issuance.
Inflation: Increasing the quantity of money and Credit (note: not the CPI)
Inflationism: The doctrine that a reliably moderate rise in the “general price level” promotes economic dynamism and financial stability. And, importantly, it is believed that any potential debt and post-bubble predicament can be rectified by additional government-supported credit expansion and a resulting higher price level.
In yesterday’s testimony, Mr. Rubin stated that Citigroup’s AAA rated CDO securities did not garner attention at the company board level because they were viewed as safe – “money good.” Mr. Prince even defended the traders operating in these instruments, explaining that they – and everyone else – believed they were holding safe securities. Citigroup’s risk managers also avoided culpability, as their models at the time foresaw an extremely low probability of default with these mortgage securities (Mr. Rubin quoted a ratio “one in 10,000”). The regulators relied on similar models. Everyone’s models failed miserably.
From my vantage point, the Financial Crisis Inquiry Commission is making little headway when it comes to understanding the crucial factors that led to financial breakdown. The defensive Alan Greenspan certainly didn’t provide enlightened testimony. I would like to suggest an alternate approach. How about a few days of hearings examining issues specific to total mortgage Credit having almost doubled in just six years, to end 2007 at $14.5 TN. More specifically, how was it possible that the vast majority of this Credit was perceived - in the marketplace; by the rating agencies; by the regulators - as “money good”? A more conceptual analytic focus would get us much closer to appreciating key Credit system dynamics than a piecemeal grilling of policymakers and executives from Citi, AIG, Lehman, Bear Stearns, the GSEs and the like.
Mr. Greenspan and others have eagerly pointed fingers directly at the rating agencies. They remain an easy target. But how could their – and Wall Street’s - risk models have failed so spectacularly? Well, it’s because there was nothing fed into these models over the past couple decades that would have suggested acute systemic vulnerability. Not since the Great Depression had there been the degree of home price collapse that would significantly impair the structure of U.S. mortgage finance (Clearly our adept policymakers would never allow another depression). For decades, national home prices rose only higher and higher. And, repeatedly, the occasional bout of financial tumult would lead predictably to aggressive Fed rate cuts and resulting lower mortgage rates, renewed housing inflation and economic expansion.
The misperception of mortgage Credit “moneyness” was the root cause of the crisis. The market perceived that Trillions of mortgage-related securities were a safe and liquid store of nominal value. This created the insatiable market demand for these debt securities that Wall Street so capably exploited. Supply and demand dynamics no longer applied, as Trillions of mortgage Credit was supplied at lower yields and easier terms. And greater mortgage Credit excess inflated home prices and economic output, further buttressing the perception that mortgage debt was Good Money. The markets’ fateful misconception – and a momentous breakdown in the market pricing mechanism - can be traced directly to Washington.
Going back to the 1994 bond market crisis, Fannie, Freddie and the FHLB had become the steadfast liquidity backstop for the mortgage/bond market in times of stress and speculator deleveraging. Especially during crisis periods, the GSEs enjoyed unlimited capacity to borrow cheap finance that they would then immediately redeploy to purchase mortgages, MBS, CMBS, ABS and other debt instruments (reliquefing markets). The implicit guarantee of federal government backing – a perilous market distortion tolerated by Houses of Congress, Administrations, financial regulators and Federal Reserve officials over the years – was instrumental in the GSEs amassing Trillions of debt. The long-standing U.S. national policy of promoting homeownership – and rising home prices – was fundamental to the perception of mortgage Credit “moneyness.”
Inflationism today dominates economic doctrine and policy - and has so for years. The view holds that the Federal Reserve’s manipulation of the general price level moderately higher each year (say, a steady 2 to 3%) helps grease the economic wheels - while underpinning the value asset markets and system debt. Federal Reserve manipulation of interest rates and Fed market interventions, as necessary, remain fundamental to ensuring requisite Credit system expansion and systemic stability. The Greenspan and Bernanke Federal Reserves convinced themselves that asset price inflation should be disregarded, as long as consumer prices remained well-contained. And their strategy for how they would deal with Credit system and asset price dislocations was communicated quite explicitly to the markets: “mopping up” would entail aggressively inflating system Credit as required to buttress asset prices, the general price level, and debt market stability. Deflation was THE scourge to be avoided at all cost.
The “inflationism” intellectual and policy doctrine was instrumental in forging a historic market distortion: the perception of mortgage Credit “moneyness.” Inflationism is the root cause of the recent crisis – and a rather lengthy list of debacles throughout history. Today, the same dangerous incongruity exits that throughout history has propped up inflationism when apparent failings should have led to this dogma’s collapse: Instead of inflationism being recognized as the problem – the force behind the boom and unavoidable bust - more extreme inflationism is instead viewed as the solution. There is today virtually universal support for policies that would incite a rapid increase in stock market and real estate prices; rising employment, incomes and spending; and a brisk economic recovery. The common view today is that the greatest risk is to fail to inflate sufficiently.
It’s fine that the Financial Crisis Inquiry Commission is holding scores of hearings. But it is battling the last war. AIG, the Wall Street firms and the banks will not be the instigators of the next crisis. Today’s excesses and market distortions are not conjoined with “Wall Street Alchemy” or the “moneyness” of private-sector Credit. Inflationism and its market distortions are not these days promoting ridiculous behavior by our financial sector executives. Today’s abuses and market distortions go to the heart of “money.”
The greatest danger posed by the Wall Street/mortgage finance Bubble was that its bursting would incite a policymaker response with the potential to destroy the Creditworthiness of our entire Credit system. Gross lending and speculating excesses destroyed the “moneyness” of private-sector mortgage Credit. Now, aggressive “mopping up” policies that inflate Trillions of government debt securities, obligations and guarantees nurture new market distortions and Bubble Dynamics.
Despite alarming financial vulnerability, state and local governments continue to pile on debt at incredibly attractive terms. In spite of underlying financial and economic fragility, junk debt issuance is running at record pace. Inflows continue to inundate bond funds - at home and abroad. Estimates now put hedge fund asset as high as $2 Trillion by the end of the year. Retail stocks are not far away from record highs. Risk premiums are narrow throughout.
The massive issuance of government “money” has always been inflationism’s trump card. It’s now in play, and this latest round of inflationism is again profoundly distorting market perceptions. “Too big to fail” has broadened from large financial institutions to encompass the entire system. Today, GSE obligations and municipal debt enjoy “moneyness” only because of the markets’ belief that Washington will not tolerate disruptions in these key markets. Risk premiums throughout the corporate debt market have collapsed on the back of the view that massive stimulus ensures economic growth and strong company balance sheets. Throughout the risk markets, prices are buoyed by confidence that the Fed will restart monetization operations in the event of any market liquidity disruption. Hedge funds and other speculators are thriving once again as they successfully exploit Washington’s inflationary policymaking. Washington further disrupts the market pricing mechanism with its ongoing massive fiscal stimulus, ultra-low interest rates, and liquidity backstop operations.
I noted above that “‘Money’ is inherently dangerous because virtually insatiable demand creates a propensity for over-issuance.” There is a second fundamental danger inherent in “money:” A loss of confidence immediately incites a very disruptive systemic dislocation. If you can’t trust money, what can you trust? No trust – no functioning Credit system or stable economy. Indeed, you really don’t want to mess with “money.”
Importantly, you don’t want to allow distortions in money perceptions to establish a foothold. Such distortions are always and everywhere the lifeblood of Bubbles. Above all, you certainly don’t want to finance a massive inflation of non-productive debt with “money.” This only ensures a problematic widening gulf between perceptions of safety and liquidity and the actual deteriorating underlying soundness of these financial claims. And when the inflation of this money is also distorting market perceptions for Credit and asset prices throughout the entire system, inflationism is really playing with fire. Money Not Good.