Can the Plunge Protection Team Save the Treasury Market?

This commentary actually is highly correlated to my last post about housing prices.  You might say: "as go bond prices, so go housing prices."  Because the housing market is nearly 100% financed with bonds of some sort, housing prices assume the price movement characteristics of bond prices.  When bond prices tank and interest rates go up, housing prices will tank, as higher interest rates will directly affect the amount of money someone can pay for a home (let's leave aside the growing shadow supply of homes) and focus on the growing supply of Treasury debt. 

The Fed can keep short term rates low by leaving the Fed funds rate at zero (or even take them negative by paying banks to borrow - something we may see once Janet Yellen is safely deposited as Vice Chairman of the FOMC) and by using policy tools to create a flood of short term liquidity (see the $2+ trillion in excess bank reserves sitting at the Fed, which is being used to monetize Treasury auctions right now).

HOWEVER, the long end of the Treasury curve is beyond the control of the mighty U.S. policy makers and Wall Street Mafia thugs.   As our foreign creditors shy away from new Treasury auctions (see the previous 2/5/7yr Treasury auction in which Wall Street had to swallow over 50% of the bonds issued), interest rates will start to move higher quickly.

As you can see from the chart below, the ETF which represents a 20-yr Treasury bond price, is teetering on the brink of a freefall as it flirts with breaking a multi-year head and shoulders formation:

This is not a chart that you want to own and the breach of the head and shoulders formation portends much higher interest rates at the long end of the curve.  And do NOT be bamboozled again by the financial media crowd, namely CNBC and Bloomberg.  Rising interest rates are NOT an indication that the economy is picking up steam.  Rates are rising against the desires and efforts of U.S. policy makers because of the sheer unsustainability of the U.S. spending deficits AND the related MASSIVE supply of U.S. Treasury bonds coming this year.

Oh, there is another way for the Treasury to raise money thru bond issuance:  the Fed can monetize them with the printing press.  Either way the implications are for a much weaker U.S. dollar, much higher interest rates and much higher gold/silver prices.  In fact, I believe that we will see upward movement in the price of gold during the rest of this year that will take almost everyone by surprise.