The interestrate/bond price teeter totter.

If you are curious about the inter-relationship of equity, interest rate and bond prices, there is a fantastically lucid explanation:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/2/7_Calls_For_Printing_$30_-_$100_Trillion_Now,_It_Is_Out_Of_Control.html

While, the explanation is lucid, the definitions of equity, debt and such is difficult to understand. It took me several readings to digest it. It is the same with Accounting. Whet you feel intuitively should be credit, is defined as a debit and so on.

However, the definition by FitzWilson pays off for you when he discusses the relationship of interest rate and bond prices. The two vary reciprocally: that is, when interest rate goes up bond prices go down and vice verse. The explanation lies in the fact that a bond varies in price in terms of the income it generates.

Let's say you buy a bond that pays 5% interest. That amounts to $50/year. If interest rates double, new bonds will pay $100/yr and people who have the 5% bonds will try to sell the old bonds to buy the new ones. So, the 5% bonds will lose value untill they lost 1/2 of their value, so for $1000 you can now buy either one 10% bond or two 5% bonds.

The current situation represents the top for bond values, because interest rates are very low. When interest rates will start to rise, bond values will drop, especially Treasuries. The current yield on Treasuries is negative because the yield is 2% on the 30Y T bill, while inflation is 2% officially and about 8% acc to ShadowStat. So, why do people by Treasuries if they are losing money by buying them? Because of fear.

We see the 20s recapitulated when the FED quadrupled its balance sheet. The early Depression following WWI was done away with by reducing govt spending by over 60%. A Stock Market crash followed and then the Depression. Hyperinflation was avoided by the economic collapse. The Obama regime is repeating the same mistakes.