If the US truly left the USD to “market forces”, the Fed would cease QE and taper its balance sheet and let the private global USD market price the UST market. The USD would likely skyrocket as massive US government deficits crowded out global USD markets; before long, global economies (esp. EM) and global risk markets would collapse; UST yields would likely fall sharply at first as global markets crashed, but shortly thereafter would likely

“Bitcoin is unlike any other bubble we’ve seen so far” (page 2) “December jobs report – recovery goes into reverse” (page 5) “Atop the powerful Senate Budget Committee at last, Bernie Sanders wants to go big” (page 7) “Fed officials see strong US rebound, fanning talk of taper” (page 9) “Criticism of the Fed is growing” (page 10) Capital flight out of the USD appears to be driving breakouts in EU, Chinese, and Emerging Market

UST supply/demand mismatch means the Fed finds itself facing the same choice it did in summer 2019: Cede control over the price of money or cede control over the quantity of money (i.e., grow the Fed’s balance sheet faster.) Ultimately, the Fed’s only politically-palatable choice is “grow the Fed’s balance sheet faster”, but in the near term, the Fed probably wouldn’t mind taking some froth out of markets first. Further supporting this line of thinking

“China has set its sights on the US bond market, which showed new vulnerability last year.” (page 2) Three photos from this week that suggest any type of US austerity or rate hikes are politically untenable (page 4) Trailing 12-month US Treasury Receipts have begun falling again, suggesting the recovery has stalled out (page 6) The case for a sharp near-term USD rally in a nutshell (page 8) Legendary healthcare investor says “COVID new case

Sooner or later, everyone sits down to a banquet of consequences. -Robert Louis Stevenson The US needs to refinance $7-8 trillion in 2021, but at the moment, the Fed is not buying nearly enough USTs for that refinancing not to cause a likely rise in UST yields, the USD, or both that would likely severely hurt US and global asset prices. However, if the Fed increases QE to effectively help the US refinance its debt, it

“Fed Chair Powell: Judging by real interest costs/GDP, actually debt load isn’t that bad.” (page 2) Did you catch this highly underreported portion of Fed Chair Powell’s commentary this week? (page 4) “Increase in US poverty levels posts biggest jump since the government began tracking poverty 60 years ago” (page 7) “It is possible, even likely, that UST T-Bill rates will be negative for a significant period” (page 9) “History shows that high inflation is