Interest rates soaring and new homes sales plunging are signs of stress fractures in a failing economy. Despite $85 billion per month in new money creation, the Fed has been unable to keep the economy above stall speed. Just the hint of taking away the punch bowl has sent bond markets plummeting.
July new home sales dropped 13.4% from the previous month. The skyrocketing 10 year Treasury, which is the bench mark rate that lenders use to figure mortgage rates has almost doubled from its lows in May. The rate has risen from 1.6% in may to briefly touch 2.92% last week.
Many of the sages that predicted the housing bubble like Peter Schiff, Nouriel Roubini, and Ron Paul have since warned of an even bigger bubble of sovereign debt. Even the world’s largest Bond fund manager, Bill Gross, compared the current bond market to a supernova. For those of you who don’t watch ‘Big Bang Theory’, a super nova is when a star, like our sun, burns enough gas to lose the density required to maintain enough gravity to keep all of the gases together. The gases expand to many times larger than the original size of the star. The gases burn up in a giant flash that sears any nearby plants orbiting around the star. Bill Gross went on to say that he recommends hard assets like gold. That is the equivalent of Hilary Clinton telling folks to vote for Rand Paul.
The rapid rise in interest rates is definitely a cause to keep your eyes open. Whether the Fed is letting rates rise because they are anticipating higher inflation or if rates are rising because the Fed is losing control, both are bad news for a fragile economy.
This week did see a brief respite from the rapid increase in Treasury yields due to the fear of yet another war that we can ill afford and have no business interfering in. How convenient.
In other news, gold and silver have made a tremendous come back. At the time of writing, gold was at $1410, up from its low in June near $1200 per ounce. Silver has made an even more impressive recovery. It sits above $24 from its low right around $18.50 in June. That is a 30% jump in little more than two months. Gold and silver have served as stores of value since the dawn of time. Genesis 13:2 says ” Abram had become very wealthy in livestock and in silver and gold.” Which fiat currency can you think of that has been around that long?