Is there a bond bubble coming?

The U.S. government is borrowing and spending its own money. If the Federal Reserve continues to buy up all its own worthless debt because too many investors continue to refuse to buy it then there is going to be a very good chance that they are going to create an inflationary recession because people and investors world-wide usually buy government bonds because of their low risk but when the yields start to hit zero, as they did on short-term bonds in 2008, how long will investors be willing to, in effect, just deposit their money in them? And, if they move their money to high-yield bonds what will that do to the economy, via inflation?

Inflation, which erodes bond values over time, is most damaging to long maturity debt.

The corporate high yield bond market has rallied 30+% over the last few months but will it continue? And, if it does, how can we continue to have 0% interest rates, as Bernanke and Geithner are promising, without inflation and how will this effect the value of the dollar, especially considering there in no gold standard? In other words, there is nothing backing up your dollar bill, as when there was a gold standard and you, or any other international investor, could take that dollar bill and demand a certain amount of gold for it, whatever its worth amounted to.

I don’t know the answers to these questions but I do know that Freddie Mac and Fannie Mae are going ahead with offering refinancing to LTV’s of 125% again and these are the same two companies who, along with AIG, another insolvent company, are being bailed out by the federal government for close to a trillion dollars.

The zombie stocks of the above three companies go up and down surging on the New York Stock Exchange trading one day and tanking later in the hour, day, or week and the U.S. Government owns 80% of all three companies.

Does any of this make sense to you because it doesn’t to me? The federal government continues to ask us to spend, spend, spend and helps us by offering up incentives and stimulus packages and I seem to remember that, just a short time ago as a matter of fact, when that was EXACTLY the reason why we found ourselves in this toxic mess we are currently in.

I hope we pull out of this recession/depression, whatever it is, but I just can’t shake this eerie feeling that the economy has not yet hit bottom and may well have to totally collapse before we can sort everything out and start over with a better plan, system; maybe something like … hmmm … lemme see …. hmmm … hey, how about a Democracy; what do you think? No, well maybe you’re right; maybe it is too radical an idea but I’d like to give it a try … what the hell couldn’t be any worse than what we got now … I mean ... well I'm jus' sayin’ …