Bubble and Meltdown - part 2

Been away for a couple of weeks. Before I move on to the other topics one more thought on the Giant Pool of Money.

One of the reasons given for a government policy of fiscal restraint is that huge government borrowing will "crowd out" borrowing by business. The idea is that as the deficit and national debt grows the US goverment will have to issue more and more T-Bills and Bonds and will soak up all available fixed income investment money. Over time the investors will require higher and higher interest rates not due to the risk of default but due to the risk of USD inflation. As the interest rate rises on US government bonds then it will also have to rise on all USD corporate bonds. USD corporate bond holders face the same risk of USD inflation plus the credit risk.

But after a decade of huge deficits it hasn't happened. Even before the meltdown US government bonds had low yields and after the bubble, the bail-outs, the 2010 stimulus and the 2011 tax deal 10 year bonds are currently yielding less than 4.00%.

Why?

I believe the answer may be the Giant Pool of Money. The supply of money available for fixed income investment continues to increase. The money is concentrated in foreign central banks, balance sheets of the largest corporations, US banks and the super-rich.

If interest rates on US government and investment grade USD corporate bonds stays low then this may be an indication that the Giant Pool of Money is a decisive factor. Stay tuned.