I found this article very worrisome. Fixed income investors are accepting a negative yield just to purchase protection against inflation! My interpretation of this is that many in the bond market believe the Fed will NOT take action to raise short-term rates even if inflation continues to accelerate. (Otherwise, cash would be a preferred inflation hedge than a negative yield investment). If you had asked me two years ago, I would have said this is unthinkable, given the mandate of the central bank to maintain price stability. We must all rethink this in light of exactly how reckless the Fed has indeed become under current management. If the Fed’s optimism regarding future inflation is proven wrong, we all will pay a heavy price in the years to come.
Although the stock and bond market weakness of the past six months appears to be opening new opportunities for investors, caution must maintained as markets signal lack of confidence in policy makers.
TIPS' Yields Show Fed Has Lost Control of Inflation (Update2) By Sandra Hernandez and Deborah Finestone
Posted March 11, 2008 by Nathan Gendelman
I also think Greenspan was less than honest when he said this was unforseeable.
As for the Fed I see three options: 1) Buy the garbage no one wants, 2) allow the garbage to default 3) allow inflation to carry everyone out of debt.
I suspect they'll choose the later.
Charlie