As per Merriam-Webster, the definition of a conundrum is:
1: a
riddle whose answer is or involves a pun;
2 a: a question or problem having
only a conjectural answer, b: an intricate and difficult problem.
As the housing bubble was going into overdrive, Alan Greenspan described the
low long-term interest rates as a conundrum because long-term interest rates
did not rise in concert with the ongoing economic expansion. What the Federal
Reserve failed to see was that long-term rates were artificially low because
foreign central bankers were aggressively buying US Dollars and Treasuries.
In Congressional testimony on February 16, 2005, Alan Greenspan said:
For the moment, the broadly unanticipated behavior of world bond markets remains
a conundrum. Bond price movements may be a short-term aberration, but it will
be some time before we are able to better judge the forces underlying recent
experience.
Not realizing the effects of foreign capital flows on long-term interest rates,
the Federal Reserve, by not taking action, incentivized Americans to bid up
houses and consume beyond their means with borrowed money. The Federal Reserve
should have been the know-all, be-all that markets came to believe.
Today, the foreign capital flows that led to Greenspan's use of the
word conundrum are disappearing. This is clear as foreign governments cut back
on Treasury holdings, largely explaining the rise of long-term government interest
rates. In an effort to replace the foreign capital flows that once supported
long-term government bond markets, the Federal Reserve is printing money to
buy long-term Treasuries. In essence, the Federal Reserve is attempting to
recreate the conundrum. Ironically, when the Federal Reserve wanted higher
long-term interest rates, it could not achieve its goal. Now that it needs
lower long-term interest rates it is also failing.
Continental Capital Advisors, LLC was formed to offset the destruction of
wealth caused by the global devaluation of currencies by central banks. The
name Continental Capital symbolizes the 1775 US Currency, "the Continental",
which was backed by nothing and quickly became devalued.
Disclaimer: The above is a matter of opinion and is not intended as
investment advice. Comments within the text should not be construed as specific
recommendations to buy or sell securities. Individuals should consult with
their broker and personal financial advisors before engaging in any trading
activities. Certain statements included herein may constitute "forward-looking
statements" with the meaning of certain securities legislative measures. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of the above mentioned companies, and / or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Any action taken as a result of
reading this is solely the responsibility of the reader.
Continental Capital Advisors, LLC was formed to offset the destruction of
wealth caused by the global devaluation of currencies by central banks. The
name Continental Capital symbolizes the 1775 US Currency, "the Continental",
which was backed by nothing and quickly became devalued.
Disclaimer: The above is a matter of opinion and is not intended as
investment advice. Comments within the text should not be construed as specific
recommendations to buy or sell securities. Individuals should consult with
their broker and personal financial advisors before engaging in any trading
activities. Certain statements included herein may constitute "forward-looking
statements" with the meaning of certain securities legislative measures. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of the above mentioned companies, and / or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Any action taken as a result of
reading this is solely the responsibility of the reader.
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