Rising sovereign yields and a sovereign debt crisis could make headlines in 2023
Rising central bank rates, together with rising treasury yields in the US, Europe, and most recently in Japan as the BoJ decided to let the 10-year float was a story in 2022 which is likely to continue in 2023.
Here is the 800-pound gorilla; the 24 trillion USD treasury market, the pinnacle of prime western collateral, remains negative yielding, in the face of 7.2% inflation.
“Rising sovereign yields and a sovereign debt crisis could make headlines in 2023”
So the Fed’s 2% inflation target is no longer credible.
Fed Chair Powell knows inflation can not be tamed with negative real rates. The Fed fund rate of 4.5% remains below core inflation of 7.2%. The shocker; Fed monetary policy was accommodating in 2022, and its monetary policy normalization attempt, in the face of decades of high inflation, wiped off more than 13 trillion dollars of investors’ wealth.
Another factor in the equation is the 31 trillion USD public deficit costing approximately 500 billion USD to service. The system is too indebted to shoulder monetary tightening. But keyboarding more currency into existence to pay interest on the debt further dilutes USD value. Nevertheless, Powell stated in 2012 the economy would not know how to function without stimulus measures because those measures had been active for so long.
“Fed Chair Powell knows inflation can not be tamed with negative real rates”
The Fed could choose the path of least resistance, with the 2% inflation target raised to 4% in 2023.
As soon as treasury investors get wind of this a renewed wave of selling in the treasuries could push the 10-year treasury yields higher above 4%.
“The realization that vaccinations were neither effective nor safe has reached normie consciousness” – Win Investing
Currency crisis could make headlines in 2023
A currency crisis leads to a cost of living crisis, industrial action, civil unrest, and, in its most acute form, a failed state.
US hegemony places the USD in a privileged position, as is the world’s global currency. USD is relatively robust enough to cope with currency dilution from Fed’s printing.
But as the Fed dilutes the dollar, fueling US inflation that could trigger a currency crisis for everyone else.
Rising treasury yields siphon global liquidity, Milkshake’s theory, and to prevent capital outflows central banks follow the Fed and raise rates, letting yields go higher.
All the stars are aligning for another 2013 peripheral sovereign debt crisis in the eurozone in 2023.
In light of the perilous debt situation and elevated inflation from currency debasement and the ongoing war in Europe, the USD is likely to outperform.
Pharma lawsuits; headlines in 2023
The realization that vaccinations were neither effective nor safe has reached normie consciousness.
Vaccine dangers, UK Parliament debate, and across the Atlantic the National Vaccine Injury Compensation Program highlights above.
Pharma stocks could underperform in 2023.
Layoff, foreclosures, and a recession; headlines in 2023
Staring down the barrel of a Great Depression, financial meltdown the Fed will be forced to pivot.
The ongoing war in Europe worsens; headlines 2023
The road to peace is being rejected. Recognize Ukraine as a buffer zone; Respect Ukraine’s sovereign integrity in exchange for the country remaining neutral, not joining NATO and EU, would enable Ukraine to exist in peace as a sovereign state.
But the puppet masters want war. War keeps the hegemon on the throne, trashing the EU and the Euro, and increases demand for safe-haven US paper.