If you want to track how close we are to the next financial collapse, there is one number that you need to be watching above all others. The number that I am talking about is the yield on 10 year U.S. Treasuries, because it affects thousands of other interest rates in our financial system. When the yield on 10 year U.S. Treasuries goes up, that is bad for the U.S. economy because it pushes long-term interest rates up. When interest rates rise, it constricts the flow of credit, and a healthy flow of credit is absolutely essential to the debt-based system that we live in. Just imagine someone squeezing a tube that has water flowing through it. The higher interest rates go, the more economic activity will be squeezed. If interest rates continue to rise rapidly, it will be more expensive for the U.S. government to borrow money, it will be more expensive for state and local governments to borrow money, the housing market may crash again, consumer debt will become more expensive, junk bond investors will be in for a world of hurt, the stock market will experience a tremendous amount of pain and there is a good chance that we could see the 441 trillion dollar interest rate derivatives bubble implode. And that is just for starters.
So yes, we all need to be carefully watching the yield on 10 year U.S. Treasuries. On Friday, it opened at 2.76% and hit a high of 2.86% before closing at 2.83%. The yield on 10 year U.S. Treasuries is up nearly 120 basis points since the beginning of May, and almost everyone on Wall Street seems convinced that it is going to go much higher.
We are truly moving into unprecedented territory, because we have been in a bull market for U.S. Treasuries for the last 30 years. Many investors don’t even know that it is possible to lose money on U.S. Treasuries. They have been described as “risk-free” investments, but that is far from the truth.
In fact, we could see bond investors of all types end up losing trillions of dollars before it is all said and done.
And those in the stock market will lose lots of money too. Low interest rates are good for economic activity which is good for the stock market. The chart posted below shows that Dow Jones Industrial Average (INDEXDJX:.DJI) have generally risen as the yield on 10 year U.S. Treasuries has steadily declined over the past 30 years…
When interest rates rise, that is bad for economic activity and bad for stocks. That is why so many stock analysts are alarmed that interest rates are going up so rapidly right now.
And as I wrote about the other day, we have just witnessed the largest cluster of Hindenburg Omens that we have seen since before the last financial crisis. The stock market already seems ripe for a huge “adjustment”, and rising interest rates could give it a huge extra push in a negative direction.
By the time it is all said and done, stock market investors could end up losing trillions of dollars in the next stock market crash.(...)Click here to continue reading the original ETFDailyNews.com article: Dow Jones Industrial Average: This Will Crush Stock Market GainsYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
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