Largely lost in the sauce of a hectic and scary week was president Trump’s announcement of an allegedly temporary suspension of interest payments on outstanding student loan debt. That means student loans are now both interest-free and guaranteed by the the Federal Reserve. The Fed funds rate is also going to zero. The chance that student loan interest rates go back up is about the same as the chance that the funds rate does.
If that turns out to be the case, the $1.6 trillion in student loans is bad debt–well, it mostly already is, but this will make it all but official–on top of the $1.5 trillion in quantitative easing. The nominal funds rate is zero.
Treasury yields are in the process of deciding where to go. If they fall towards zero, the dollar has some staggering left to do. If they spike upwards, it will be an ominous sign that there is serious concern this round of super QE–debt monetization, where the government sells bonds to itself–is going to deal the fatal blow to the US dollar as the global reserve currency.
It’s 2008 all over again, except this time the Fed is out of ammunition before the Crisis has even appeared. Things are going to get ugly. Maybe not tomorrow, maybe not next week, but soon.