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For anyone old enough to remember, let’s hope the boys are back in town. For anyone born after, say 1980, here is today’s history lesson:

As Paul Volcker was choking out the ravages of inflation, beginning with 1979-1980, the Prime Rate (remember that) was 21.5%, it started an old fashioned, 4-decade decline on interest rates. The stagflation of the Carter Era was killing the economy in every possible way. So America took it’s painful medicine in hopes of a better future. Guess what? It worked. Short term pain, long term gain.

Fast forward to today and no one, the Fed, Treasury, the DC talking heads, can allow a little short term pain, for long term gain. Our current/world’s high wire act of ultra low and even negative rates ($17 trillion+) to reflate world economies, continues unabated. Wisdom screams for normalized rates; But no one let’s it happen.

Well, during the Greenspan Era, a small, but powerful cadre of traders took matters into their own hands. As ‘Helicopter Ben’ dropped copious amounts of money into the market, this cadre managed to push UP interest rates. A classic example of ‘checks and balances’. Don’t look now, but interest rates are heading north, no thanks to the Fed. Perhaps the bond vigilantes are riding back to the rescue.

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Greg Zandlo

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