U.S. Treasury Printing Dollars at a Rate of $2 Million per Minute!

For the first time in nearly a generation, fixed income is living up to its name, which is a consequence of benchmark rates jumping from 0% to 5% over a span of two years. Even though Wall Street seems fixated on “when” the Fed will reduce interest rates, some Fed Board members have indicated not only that it may not be soon, but they also will not rule out the possibility of another short term increase.

After nearly two decades of being held hostage by zero-rate policies, US Treasuries are finally returning to their traditional role in the economy, which is to provide a source of income that investors can lock in and rely on for years and years, regardless of the yield rate at any given moment. Precious metals have risen lately, but languished for an extended period. However, all indications are that they too are reverting back to their traditional role of countering inflation, economic chaos, and stock market volatility.

Regardless of comments by Fed Chair Jerome Powell and his wait-and-see approach, market traders seem stubbornly committed to expecting two quarter-point cuts by the end of the year, which seems more than hopeful, but far more realistic than the six cut expectation they started the year with. It’s no small irony that the newfound income from Treasuries may itself be responsible for keeping the “higher-for-longer” narrative on track. There is a small, but growing group on Wall Street willing to argue, along with the surge in stock prices, that the interest paid on Treasuries and other bond investments is creating a material wealth effect among Americans, with the newfound cash acting like stimulus checks supporting the surprisingly resilient economy.

The financial purpose of owning US government bonds is that they aren’t supposed to lose money, are less volatile than equities, and will provide a fixed rate return above inflation, but their back in demand now as a buy-and-hold option, because of brutal losses in recent years created by rampant inflation and the aggressive rate hikes required to combat it. The reset, however painful, has now paved the way for higher future returns and a “more normal” fixed-income market.

In spite of this good news on the Treasuries front, the possibility of devaluation, due to the coming digital dollar, is on everyone’s mind, which is another reason that precious metals are and appear to be continuing to increase in value.