Bitman on Nostr: A massive fixed income/credit bubble has formed due to optimism and the abundant ...

A massive fixed income/credit bubble has formed due to optimism and the abundant supply of primary money by the Fed after 2008, and in record amounts in 2020 due to the pandemic. The result: inflation. The market in 2021 and 2022 reacted to this by demanding higher interest rates (rates went from zero to 5% per year). The Fed began withdrawing this liquidity by selling assets back to the market. However, the market, still fearing inflation, does not understand that interest rates need to continue being reduced. The Fed, however, by continuing to withdraw liquidity from the market, is leaving it with a very low level of monetary base, insufficient to support the existing monetary aggregates (credit). In other words, if the Fed decides it needs to raise interest rates and keep withdrawing liquidity from the system, it will precipitate the bursting of the massive credit bubble. On the other hand, if it decides to lower interest rates, the market itself will interpret this as a compromise in inflation control and, as a result, will raise interest rates on its own, also likely triggering the bursting of the credit bubble.