Having just escaped from the government shut down and the debt-ceiling drama, a new monster appears to be emerging as global investors could be ready to start dumping U.S. dollars.
As soon as an agreement was reached on the debt-ceiling last week the value of the U.S. dollar dropped sharply in global currency markets. Many were surprised by the plunge because forecasts from technical analysts had indicated the dollar had already bottomed out and was ready to move up. Now new forecasts are indicating the dollar could go much lower.
The dollar’s drop in value last week might be only the beginning. A highly respected financial expert, Dr. Martin Weiss, has just released a shocking forecast that the U.S. bond market is about to collapse. He says global bond investors are about to rise in rebellion and dump their U.S. bond holdings. If that happens the dollar value would drop even further, bond prices would drop, interest rates would increase sharply, and the economy would be in big trouble.
I have been reading articles by Dr. Weiss for a couple of years and have been very impressed with his knowledge of the markets and his long successful track record. He was one of the few analysts who saw the 2008 collapse of the housing market before it happened. He has spent a lifetime tracking and studying the bond market and interest rates. Much of what he learned came from his father, who also spent his lifetime studying these same topics, and helped President Dwight D. Eisenhower balance the federal budget in 1959. Dr. Weiss founded Weiss Research in 1971 and has dedicated the past 40 years to helping millions of average investors. He is also president of Weiss Ratings, the nation’s leading independent rating agency accepting no fees from rated companies.
Dr. Weiss says we are about to experience a collapse that could be worse than what happened in October 1979 when bond prices dropped uncontrollably, 2.5% in a single day, followed by even bigger drops over the following months. Bond prices dropped 5% in a single day in February 1980. Bond prices move inversely to interest rates so when prices dropped, interest rates skyrocketed to nearly 17% for U.S. Treasury bills. The market collapse caused the value of the U.S. dollar to plummet and nearly shut down the U.S. government.
The following is an excerpt from Dr. Weiss’ new forecast:
Global bond investors will rise in rebellion and dump their U.S. bond holdings.
THAT’s what will force the government to virtually shut down — not a crisis created in Washington.
Why will global bond investors rebel? For the same reasons we have been stressing all along:
Because none of the debt problems have been solved.
Because the war in Washington has barely begun.
Because the next battles are ALREADY on the calendar — in January and February!
And because those battles are bound to be far larger and more damaging than any we’ve seen before. Nothing has changed.
All we’ve witnessed in the past fortnight is the most expensive, most damaging and most frightening can-kicking operation since the founding of the Republic.
But as I explained two weeks ago, the bond investor rebellion we’re forecasting is not unprecedented. It has happened before — in 1980, under the Carter administration… My forecast was — and is — that this will happen again. When it does, you’d better be ready. It won’t be pretty. [Continue reading]
As Dr. Weiss pointed out, Congress has already notified the whole world that the debt-ceiling drama will be returning in the next few months. Global investors don’t have to wait to see what will happen because the dates are already published for everyone to see. Therefore, it is likely that many investors will go ahead and take actions now to protect their portfolios by pulling their money out of U.S. bonds. The return of the debt-ceiling drama already makes it far more risky to invest in bonds, even in short maturation bonds. Therefore the impact on the bond market could begin right away.
The bond market does not get as much media coverage as the stock market or the housing market, but it is extremely important because of its’ impact on the value of the U.S. dollar and interest rates. If investors are not willing to buy U.S. bonds, the U.S. Treasury must lower prices and increase yields to attract buyers. The total U.S. bond market was valued at $31 trillion in 2009 (Source: Wikipedia), which makes it much larger than the U.S. stock market.
Here’s why this could get ugly very fast. As bond prices drop, investors holding long maturity bonds would be stuck with big losses. As interest rates rise, all borrowers would be stuck with higher borrowing costs, including the U.S. government, businesses, and consumers. Higher borrowing costs in the form of interest payments would be a big burden to our federal government due to their $17 trillion debt. In addition, reduced bond purchases means less revenue coming into the federal government. So it is a double whammy combination of higher interest payments and less revenue. The Federal Reserve would be forced to abandon their plans to taper bond purchases. Instead they would be forced to increase bond purchases just to keep the federal government solvent. So the federal government would be in more trouble than ever before.
Businesses would also be hurt by higher interest rates, making it more expensive to borrow money. The economy’s slow growth rate would likely shift into reverse as we enter another recession or even a depression. Many American consumers would also be hurt because they are already in rough shape due to record high debt levels and record low savings levels. Higher interest rates and fewer jobs would make things even harder for them.
As the world’s largest economy, whatever happens here has a big impact on the global economy. The U.S. bond market consists of global investors, which are mostly sovereign governments and multinational financial institutions. Both are still reeling from the 2008 collapse of the U.S. housing market. For example, in the European Union sovereign debt levels have soared since 2008 for almost every country. They don’t have room to absorb big losses from a collapse in the U.S. bond market.
The U.S. dollar is the world’s reserve currency. A large drop in the value of the dollar would cause extreme volatility in currency exchange rates around the world. A collapse of the U.S. bond market would very quickly become a global crisis.
So the new debt-ceiling bill enabled us to avoid the danger of a federal government default, but as Dr. Weiss stated, none of the debt problems have been solved. We might have escaped from the frying pan only to be jumping into the fire.
This could be what many of God’s people have been seeing. At the beginning of this year, prophetic minister Patricia King, founder of XPmedia.com, said, “In 2013, the economy of the world is going to be shaken.” See my previous post: Worldwide Economic Shaking Coming in 2013.
Another prophetic minister Cathy Lechner, from King Jesus Ministries, shared a message at the beginning of this year saying, “It will seem like overnight that the bottom is going to drop out of our economy. It will make the last recession that we went through look like a picnic compared to this one. We will be in, or close to, double-digit inflation and recession in our country. We are going to see the failure of more banks as we come closer to that one world banking system.” See my previous post: The Bottom Will Drop Out of Our Economy and Banks Will Fail in 2013.
All the turmoil in Washington DC and in our financial markets is enough to make investors sick. No wonder half the country stays doped up on prescription and illegal drugs. All the uncertainty is enough to make anyone sick, if they allow it to. But the good news is we don’t have to put up with that. I have found a proven method for keeping my health and my peace through any storm that comes my way, even without drugs. I do a daily swap deal where I unload all of my cares in exchange for the peace of heaven and the joy of the Lord. It is the best deal I have ever found anywhere.
I honestly don’t know how people live without the Lord. I tried it for my first 23 years, but I never want to go back. The good news is I don’t have to, and you don’t either. Click this link if you would like to know the peace and joy that comes from knowing the Lord personally.
Author: James Bailey
James Bailey is a blogger, business owner, husband and father of two grown children. In 1982, he surrendered his life to the Lord Jesus Christ. In 2012, he founded Z3news.com to broadcast the message of salvation by reporting end time news before it happens.
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