Saturday, September 24, 2011

No Interest, No Return

Hey boys and girls, remember when I thought 3% interest on a 10-year T-bill was low? Yeah, well I didn’t know anything.

(Chart from Bloomberg)

That’s a closing rate of 1.83% after going as low as 1.67%. You can get it right off of the U.S. Treasury’s page if you’d like.

I say again, I know just enough about this stuff to be dangerous. I don’t even like keeping up with money. I’m not an economist. I just listen to one who is.

Freudian Headlines

”...last year austerity fever swept through the ranks of Very Serious People like a dance craze, and that both policy makers and the media are having a hard time returning to reality.

Part of the problem is that they stuck their necks out so far on behalf of magical thinking. Now it’s difficult to back down without in effect conceding that they have no idea what they’re talking about, which happens to be the simple truth.”

Meh — And I Mean That

”OK, the Fed moved. It was a bit stronger than expected — and BB (Fed Chairman Ben Bernanke) and company stood up to the GOP.

But seriously, they’re trying to use a water pistol to stop a charging rhino.”

One Point Seven Seven

”That’s the current interest rate on 10-year US bonds.

Remember, back in 2009 there was a big debate between people like me, who said that we were in a liquidity trap and that interest rates would stay low as long as the economy was depressed, and people like the WSJ editorial page and Niall Ferguson, who said that government borrowing would bring on the bond vigilantes and send rates soaring.

How’s it going?”

As Krugman says (read his blog), this isn’t just an exercise in “I Told You So” (even if that is one of my favorite pastimes.) This is about extracting ourselves from this economic mess. It is about which path to follow. It’s about what works and what doesn’t.

The easiest way to tell -- and the most important factor in all this -- is the unemployed. How many are unemployed and how long have they been unemployed? I don’t even have to check the statistics (and I bet you don’t either.) I’ve got family and friends that have been unemployed for years. Not months -- but years. That means we’ve had years to figure this out. What works? What doesn’t?

Austerity -- paying down debt by cutting government spending -- does not work. It hasn’t worked in Greece, it hasn’t worked in Ireland, nor Spain, nor the United Kingdom. Remember, we’re watching the United Kingdom.

Weak U.K. Growth Underlines Case to Slow Down Budget Cuts, Balls Says

”The International Monetary Fund cut its 2011 and 2012 U.K. growth forecasts this week to 1.1 percent and 1.6 percent respectively, and the head of the government’s fiscal watchdog, the Office for Budget Responsibility, signaled he was likely to follow suit.

Bank of England officials are already considering restarting their bond-purchase program and the junior coalition partners, the Liberal Democrats, are discussing the need to speed up capital spending to boost flagging demand.”

If that sounds familiar, that’s because it is. The Conservatives (like our Republicans) want to pay down the debt and the Bank of England (their Central Bank like our Fed) is thinking of buying up bonds, trying to get the economy going. The difference is that the United Kingdom is not politically paralyzed like we are. Their parliamentary system of government allows the majority party to implement a plan (in this case austerity) over the objections of the minority party. And they have. And it isn’t working.

If you’re lucky like me and retired with a pension, or you still have a job, this slow passage of economic hard times might not seem as critical. If so, I don’t think you’re looking down the road far enough. Remember where we started -- with 10-year T-bills? That represents ten years of no (or little) growth. Your house doesn’t appreciate. Your 401k doesn’t grow. For ten years. No interest. No return. A “Lost Decade”. Gee, I wonder where I learned that term?

Don Brown
September 24, 2011

1 comment:

The Angry Bureaucrat said...


I just wanted to point you to a blog post I wrote about this bizarre situation last month:

I'm sure the outlook has only gotten more extreme in the past month. If only we had a Congress that could recognize the huge opportunity before them and seize it, to the benefit of the country!

-The Angry Bureaucrat