Sheila Bair predicted the speculative bubble in US bonds years ago.
Since 2008, a comparatively small set of smart observers have predicted that the combination of the Federal Reserve Bank's monetary policy and the Federal government's fiscal policy was putting the USA on the path to economic disaster. Today, I add Sheila Bair's name to the list of those prescient observers. Here is an excerpt of Bair's predictions from years ago (2012):
The Fed has maintained interest rates at or near zero for four years running, even though the financial system has been relatively stable since 2009. The Fed's actions have kept Treasury bond prices high (while keeping the government's interest costs low), but the fundamentals do not support the high valuations, given the fiscal mess we are in. Sooner or later, the bond bubble will burst. History has shown that a structurally weak economy combined with a fiscally irresponsible government propped up by accommodative central-bank lending always ends badly. Absent a change in policies, a toxic brew of volatile interest rates and uncontrollable inflation could define our future.
As we saw in the years leading up to the subprime crisis, yield-hungry investors are taking on more and more risk. Pension managers are investing in hedge funds, and gullible investors are buying up junk bonds. Meanwhile, low-yielding assets pile up on the balance sheets of more risk-averse banks. If interest rates suddenly spike, bankers may find that the paltry returns on their loans are insufficient to cover interest on their deposits.
[ Emphasis added. ]
According to the website Atlantic, Sheila Bair made that statement in an article published in the magazine Fortune. Due to "Web linkrot," IIT can no longer access the original URL or original article. Hence, IIT cannot provide a hyperlink to the original article on Fortune's website.
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