Weimar Hyperinflation and the "Flight to Trash"

August 15, 2010 • 11:22AM

In direct response to the Federal Reserve's Aug. 10 action unleashing a new stage of global Weimar-style hyperinflation, financial markets are witnessing what might be called a "flight to trash." Financial predators right and left are rushing to buy up high-return, high risk paper, confident that the Fed and other world central banks will be there to bail them out.

For example, Bill Gross, manager of the world's biggest bond fund, PIMCO, announced on Friday that they had significantly increased their exposure to mortgage-related debt, from 16% of their total holdings in June to 18% in July. Gross will be one of the featured speakers at the Aug. 17 Obama Administration housing summit chaired by Treasury Secretary Tim Geithner, which is dedicated to pulling out all the stops on the next speculative real estate super-bubble. Gross and PIMCO figure they'll make a killing, coming and going.

Gross also announced an increase in PIMCO's exposure to so-called emerging market debt, such as the wildly speculative Brazil carry trade, while reducing holdings of more stable, but less profitable, U.S. Treasury bonds.

Similarly, U.S. companies last week issued record amounts of junk bonds, at a clip 80% higher than the same period last year, in direct response to the Fed's announcement. "They wait for Obama to perpetrate an atrocity," Lyndon LaRouche commented today, "so that they can make money on speculation."

Saturday's Wall Street Journal lead story, headlined "'Junk' Bonds Hit Record," happily reports that the sale of junk bonds is easily on pace to surpass the record $163.6 billion total for 2009.