|
|
Post by looter on Jul 29, 2011 7:36:17 GMT -5
Did they go the way of the Dodo Bird? Shouldn't somebody find a pair of them, lock them in captivity, and try to get them to breed each other?
Parts of the following came from Jeff Rubin. The last paragraph is absolutely DYNAMITE!
Even though the world economy is drowning in government debt, borrowing rates remained chained to record low rate settings by the G7 central banks. In the U.S., the Federal Reserve has effectively anchored its key setting federal funds rate around zero. The Bank of Canada, for all its warnings about consumer debt levels, has its rate pegged at a very borrowing-friendly 1 per cent. And even the always inflation vigilant European Central Bank has only recently raised its trend rate to no more than 1.5 per cent.
Yet with each passing week, there seems to be more news of distress in government debt markets as governments grapple with record deficits. No sooner is one fire put out, such as last week’s decision by the European Union to extend a crumbling Greek economy another €109-billion handout, than another one pops up like the looming Aug. 2 deadline for Congress to raise the debt ceiling or provoke a potential U.S. default.
Not surprisingly, the bond market is getting nervous. There is already is a four-percentage point difference between the U.S. Treasury’s cost of borrowing in the Federal Reserve board controlled money market and the long bond market. While a 4.25 per cent yield on a 30-year Treasury bond may seem low by historical standards, it is actually pretty high when you consider that thanks to the Fed’s printing presses, the U.S. Treasury’s cost of borrowing short-term money in the bills market is less than 0.5 per cent.
Of course, it is the inflationary consequences of printing all that money, as well as those that flow from the size of the deficits that they finance, that compel long-term lenders to charge the U.S. Treasury over 4 per cent. Lenders will soon have reason to charge the U.S. Treasury even more. And it’s not because of the histrionics in Washington currently being played around raising the debt ceiling these days.
More troubling is the prospect there is little hope the Obama administration and Congress will make any progress on deficit reduction. And with triple-digit oil prices lassoing growth, the bond market can’t expect the economy to be giving Washington a helping hand on the revenue front . Faltering growth and a near double-digit national jobless rate may keep the federal funds rate grounded for another year. And failure to come to grips with the deficit, and another energy-price driven point or so rise in an already 3%+ inflation rate will see U.S. long Treasury yields reach new heights this year.
|
|
|
|
Post by looter on Jul 29, 2011 7:51:17 GMT -5
The only, and I mean ONLY politically acceptable way to reduce sovereign debt in any jurisdiction on the planet is to grow your way out of it. It's not possible anymore thanks to the problem with the oil supply. Infinite growth based on finite resources is silliness, but don't bother telling that to an economist.
We can adhere to the "Laffer Curve" and use lower tax rates to increase treasury revenue, but more economic growth also takes more energy. Since 2005 this became a severe problem.
So the treasury is gonna have less REAL (inflation adjusted) revenue. Growth is gonna follow oil flows, which means negative growth is the future. While govt revenue is ebbing/waning lower, govt expenses are going to rise. People without jobs are going to expect politicians to step on the gas pedal of Keynesian stimuli. The result will be ever-widening deficits.
My guess is that the Bond Vigilante's are getting ready to come out of hybernation. You've heard that before... Another doomer predicting rising nominal interest rates. So far such talk has been just plain wrong. Far be it for me to let being all wrong, all the time, from stopping my thumbs from typing on this tiny keyboard on my HTC Thunderbolt POS cell phone.
|
|
|
|
Post by linsal on Jul 29, 2011 8:29:45 GMT -5
Looter---Take a look at what is going on in the EU...If I recall correctly, 20% of the Greek bond holders just got clipped. I also recall that their bonds were further downgraded a few days ago. Italy and Spain are in deep doo doo with bond interest rates rising.
I believe you are absolutely correct that the bond vigilantes are going to come out...when they do, it's going to be ugly.
I truly pity anyone who has borrowed significant sums of money where the interest rate is based either on US Treasuries or Bonds----they are so screwed. I've got some money borrowed, but my interest rate is based on the Fed Funds Rate. The bond market is going to drive this thing, and I'm betting the genius's at the Fed Reserve are going to keep their interest rates low.
Did you see that Moody's estimated that there are 7000 institutions who will be impacted by a rise in bond interest rates? The first 3 on the list were Fannie Mae, Freddie Mac and Farm Credit. And just about every frickin' unit of gov't in the US is also on that list....
|
|
|
|
Post by linsal on Jul 29, 2011 8:34:47 GMT -5
And we also need to keep in mind that S&P came out yesterday and said that 4 trillion in cuts in the federal budget would be a good start. No way is that going to happen with the current crop of congress critters. The downgrade is coming. Prepare.
|
|
|
|
Post by linsal on Jul 29, 2011 14:21:07 GMT -5
And here we go!!!! US 10-Year Note Gains Point on Double-Dip Recession Fears BONDS, TREASURYS, TREASURY, DEBT, TREASURIES, T-BILLS, 30-YEAR BOND, 10-YEAR NOTES, 2-YEAR NOTES, ECONOMY, STOCK MARKET NEWS, ITALY, SPAIN, PORTUGAL, AUCTION, GREECE, DEBT, DEFICIT, DEAL, UNITED STATES, DOWNGRADE, DEADLINE Reuters | 29 Jul 2011 | 02:21 PM ET Benchmark 10-year U.S. Treasury notes traded a point higher in price Friday afternoon as news the U.S. economy grew at an even slower pace than expected in the first half of the year raised fears of another recession. Ten-year notes were trading a point higher in price to yield 2.83 percent, down from 2.95 percent late Thursday, while the 30-year bond was trading 1-20/32 higher in price to yield 4.16 percent from 4.26 percent. Growth in gross domestic product—a measure of all goods and services produced within U.S. borders—rose at a 1.3 percent annual rate in the second quarter, the Commerce Department said. In addition, output in the first quarter was sharply revised down, to a 0.4 percent pace from 1.9 percent. Economists had expected the economy to expand at a 1.8 percent rate in the second quarter. A report on Chicago-area manufacturing also was weaker than economists had forecast in July, though it showed growth. The slow-growth scenario favored safe-haven U.S. debt and raised the prospect of further monetary accommodation. "Economic growth ... was much weaker than the government had previously estimated and this opens the door for potentially another round of quantitative easing from the Federal Reserve," said Gary Thayer, chief macro strategist at Wells Fargo Advisors in St. Louis. "Therefore, the bond market responded positively to the weak GDP number while the dollar weakened." The data showed the U.S. economy is in greater danger of dipping into another recession than many had thought. "The problem in the second quarter was very, very restrained consumer spending," said Pierre Ellis, senior economist at Decision Economics in New York. "A revival in consumer spending is critical to keeping us out of recession. "We're in a situation where employment must grow and generate GDP growth and whether that will happen has become the issue of the day," he said. Treasurys at the middle of the maturity curve led the market higher, said David Ader, head government bond strategist at CRT Capital in Stamford, Connecticut. Month-end buying and nervousness before a weekend of debt ceiling talks and potential votes reinforced investors' inclination to buy U.S. Treasurys, Ader said. Ten-year yields last edged below technical resistance at 2.87 percent, he noted. Efforts to raise the U.S. debt ceiling and avert a government default, so far unsuccessful, dragged on. Click here for our Live Blog: Countdown to Debt Ceiling 'D-Day' Weak U.S. growth in the first half of the year underscored the reality that spending cuts tied to a debt ceiling increase could topple the economy into recession. Rates on Treasury debt maturing in August jumped to 6-month highs as investors dumped the debt on fear the government might postpone repayment on that debt. Rates on the $91 billion in Treasury bills that mature on Aug. 4, the first debt to mature after the government's Aug. 2 deadline for possibly running out of cash, rose to 28 basis points, the highest rate the bills have paid since they were issued on Feb. 3. The bills had traded at near zero percent until the past two weeks, when investors reacted to the debt ceiling impasse. "There's an ongoing theme of exiting from these bills that mature after Aug. 2," said Carl Lantz, interest rate strategist at Credit Suisse in New York. Most analysts expect the government will be able to roll over debt maturing on Aug. 4, as well as an additional $93 billion maturing on Aug. 11. The cost of borrowing funds overnight in the repo market also jumped in volatile trading on Friday, to 25 basis points, up from 14 basis points on Thursday. Copyright 2011 Thomson Reuters. Click for restrictions. URL: www.cnbc.com/id/43941077/ |
|
|
|
Post by looter on Jul 29, 2011 22:14:06 GMT -5
Looter---Take a look at what is going on in the EU...If I recall correctly, 20% of the Greek bond holders just got clipped. I also recall that their bonds were further downgraded a few days ago. Italy and Spain are in deep doo doo with bond interest rates rising. I believe you are absolutely correct that the bond vigilantes are going to come out...when they do, it's going to be ugly. I truly pity anyone who has borrowed significant sums of money where the interest rate is based either on US Treasuries or Bonds----they are so screwed. I've got some money borrowed, but my interest rate is based on the Fed Funds Rate. The bond market is going to drive this thing, and I'm betting the genius's at the Fed Reserve are going to keep their interest rates low. Did you see that Moody's estimated that there are 7000 institutions who will be impacted by a rise in bond interest rates? The first 3 on the list were Fannie Mae, Freddie Mac and Farm Credit. And just about every frickin' unit of gov't in the US is also on that list.... Thanks Linsal. Can you help me understand something? You said you pitied anyone who has money borrowed based on either Treasuries or Bonds? what about fixed interest loans? For example a 30 year house mortgage fixed at 4.5%? The Fed Fund Rate is short term interest right? For stuff like car loans? Sorry if I'm asking dumb questions. Thnx. |
|
|
|
Post by looter on Jul 29, 2011 22:18:28 GMT -5
And here we go!!!! US 10-Year Note Gains Point on Double-Dip Recession Fears BONDS, TREASURYS, TREASURY, DEBT, TREASURIES, T-BILLS, 30-YEAR BOND, 10-YEAR NOTES, 2-YEAR NOTES, ECONOMY, STOCK MARKET NEWS, ITALY, SPAIN, PORTUGAL, AUCTION, GREECE, DEBT, DEFICIT, DEAL, UNITED STATES, DOWNGRADE, DEADLINE Reuters | 29 Jul 2011 | 02:21 PM ET Benchmark 10-year U.S. Treasury notes traded a point higher in price Friday afternoon as news the U.S. economy grew at an even slower pace than expected in the first half of the year raised fears of another recession. Ten-year notes were trading a point higher in price to yield 2.83 percent, down from 2.95 percent late Thursday, while the 30-year bond was trading 1-20/32 higher in price to yield 4.16 percent from 4.26 percent. Growth in gross domestic product—a measure of all goods and services produced within U.S. borders—rose at a 1.3 percent annual rate in the second quarter, the Commerce Department said. In addition, output in the first quarter was sharply revised down, to a 0.4 percent pace from 1.9 percent. Economists had expected the economy to expand at a 1.8 percent rate in the second quarter. A report on Chicago-area manufacturing also was weaker than economists had forecast in July, though it showed growth. The slow-growth scenario favored safe-haven U.S. debt and raised the prospect of further monetary accommodation. "Economic growth ... was much weaker than the government had previously estimated and this opens the door for potentially another round of quantitative easing from the Federal Reserve," said Gary Thayer, chief macro strategist at Wells Fargo Advisors in St. Louis. "Therefore, the bond market responded positively to the weak GDP number while the dollar weakened." The data showed the U.S. economy is in greater danger of dipping into another recession than many had thought. "The problem in the second quarter was very, very restrained consumer spending," said Pierre Ellis, senior economist at Decision Economics in New York. "A revival in consumer spending is critical to keeping us out of recession. "We're in a situation where employment must grow and generate GDP growth and whether that will happen has become the issue of the day," he said. Treasurys at the middle of the maturity curve led the market higher, said David Ader, head government bond strategist at CRT Capital in Stamford, Connecticut. Month-end buying and nervousness before a weekend of debt ceiling talks and potential votes reinforced investors' inclination to buy U.S. Treasurys, Ader said. Ten-year yields last edged below technical resistance at 2.87 percent, he noted. Efforts to raise the U.S. debt ceiling and avert a government default, so far unsuccessful, dragged on. Click here for our Live Blog: Countdown to Debt Ceiling 'D-Day' Weak U.S. growth in the first half of the year underscored the reality that spending cuts tied to a debt ceiling increase could topple the economy into recession. Rates on Treasury debt maturing in August jumped to 6-month highs as investors dumped the debt on fear the government might postpone repayment on that debt. Rates on the $91 billion in Treasury bills that mature on Aug. 4, the first debt to mature after the government's Aug. 2 deadline for possibly running out of cash, rose to 28 basis points, the highest rate the bills have paid since they were issued on Feb. 3. The bills had traded at near zero percent until the past two weeks, when investors reacted to the debt ceiling impasse. "There's an ongoing theme of exiting from these bills that mature after Aug. 2," said Carl Lantz, interest rate strategist at Credit Suisse in New York. Most analysts expect the government will be able to roll over debt maturing on Aug. 4, as well as an additional $93 billion maturing on Aug. 11. The cost of borrowing funds overnight in the repo market also jumped in volatile trading on Friday, to 25 basis points, up from 14 basis points on Thursday. Copyright 2011 Thomson Reuters. Click for restrictions. URL: www.cnbc.com/id/43941077/So you've got people running away from short term Treasuries and flocking to the 10 yen Treasuries? Kinda wild how yields are jumping higher on the nearby.... |
|
|
|
Post by linsal on Jul 30, 2011 9:37:21 GMT -5
Looter---Take a look at what is going on in the EU...If I recall correctly, 20% of the Greek bond holders just got clipped. I also recall that their bonds were further downgraded a few days ago. Italy and Spain are in deep doo doo with bond interest rates rising. I believe you are absolutely correct that the bond vigilantes are going to come out...when they do, it's going to be ugly. I truly pity anyone who has borrowed significant sums of money where the interest rate is based either on US Treasuries or Bonds----they are so screwed. I've got some money borrowed, but my interest rate is based on the Fed Funds Rate. The bond market is going to drive this thing, and I'm betting the genius's at the Fed Reserve are going to keep their interest rates low. Did you see that Moody's estimated that there are 7000 institutions who will be impacted by a rise in bond interest rates? The first 3 on the list were Fannie Mae, Freddie Mac and Farm Credit. And just about every frickin' unit of gov't in the US is also on that list.... Thanks Linsal. Can you help me understand something? You said you pitied anyone who has money borrowed based on either Treasuries or Bonds? what about fixed interest loans? For example a 30 year house mortgage fixed at 4.5%? The Fed Fund Rate is short term interest right? For stuff like car loans? Sorry if I'm asking dumb questions. Thnx. Thanks for the question Looter. Yes, I do pity anyone (esp. farmers) who have money borrowed based on treasuries or bonds). Typcially, in my experience, the longest that one can get a farm loan which has a fixed rate of interest is 5 years. When I/R start to take off on T's and B's, when the farmer goes in to see the banker about rewewing his/her loan, they will get stuck with a higher rate of interest. If prices that the farmer receives (crops, meat, milk, etc.) remain constant or fall, it will make repaying that loan more difficult. People wishing to buy homes can get 30 year mortgages---I don't think farmers can get 30 year loans. The Fed Funds rate is the rate of interest charged by the Fed. Reserve to their customers (big banks). Next time you're in to see your banker, ask what your loan is basesd on (T's, B's, or FFR) and then ask him/her why? I like asking "Why"...you get to see if they really understand their business. Recall the 80's when many farmers were foreclosed upon. Paul Volker (head of the Fed at that time) raised I/R's to fight inflation. Many farmers who were heavily leveraged got caught. They had higher payments, and their balance sheets were destroyed b/c land prices dropped (land prices dropped b/c more people were trying to sell than were trying to buy). I see a repeat of this coming, only this time the driving force will be the bond market. And it sounds almost inevitable that US debt is going to be downgraded from Aaa to Aa. Latest projection I heard is that will add 1/2 percent interest to all loans. Combine that with the bond market demanding more interest for their risk, and we're going to have an ugly situation for some people. |
|
|
|
Post by looter on Jul 30, 2011 21:25:23 GMT -5
Thanks Linsal. Can you help me understand something? You said you pitied anyone who has money borrowed based on either Treasuries or Bonds? what about fixed interest loans? For example a 30 year house mortgage fixed at 4.5%? The Fed Fund Rate is short term interest right? For stuff like car loans? Sorry if I'm asking dumb questions. Thnx. Thanks for the question Looter. Yes, I do pity anyone (esp. farmers) who have money borrowed based on treasuries or bonds). Typcially, in my experience, the longest that one can get a farm loan which has a fixed rate of interest is 5 years. When I/R start to take off on T's and B's, when the farmer goes in to see the banker about rewewing his/her loan, they will get stuck with a higher rate of interest. If prices that the farmer receives (crops, meat, milk, etc.) remain constant or fall, it will make repaying that loan more difficult. People wishing to buy homes can get 30 year mortgages---I don't think farmers can get 30 year loans. The Fed Funds rate is the rate of interest charged by the Fed. Reserve to their customers (big banks). Next time you're in to see your banker, ask what your loan is basesd on (T's, B's, or FFR) and then ask him/her why? I like asking "Why"...you get to see if they really understand their business. Recall the 80's when many farmers were foreclosed upon. Paul Volker (head of the Fed at that time) raised I/R's to fight inflation. Many farmers who were heavily leveraged got caught. They had higher payments, and their balance sheets were destroyed b/c land prices dropped (land prices dropped b/c more people were trying to sell than were trying to buy). I see a repeat of this coming, only this time the driving force will be the bond market. And it sounds almost inevitable that US debt is going to be downgraded from Aaa to Aa. Latest projection I heard is that will add 1/2 percent interest to all loans. Combine that with the bond market demanding more interest for their risk, and we're going to have an ugly situation for some people. The 1970s had the fastest rising nominal interest rates of the post-war era. It also had a tremendous bull market in farmland and gold. The 1981 to 1986 period had the farthest falling nominal interest rates. In those years ag land and gold crashed. So might we see an era like 1973 to 1979 where both farmland and nominal interest rates move higher in lockstep? Just as then the answer to that question will be found in oil flow data. My hunch/gut tells me that REAL interest rates and NOMINAL interest rates are gonna become miles apart. Time will tell. At any rate I agree with you completely that ARM loans are to be avoided if at all possible. |
|
|
|
Post by glowplug on Jul 30, 2011 21:40:02 GMT -5
The higher interest rates coupled with the double digit inflation of the J. Carter presidency in terms of real buying power of our dollar is something to study.
Yeah, the banks were paying 11%, 14% on the money you put into a money market account, but with double digit inflation of goods-services, you really didn't get ahead.
Glowplug
|
|
mfs
Hired Hand
Posts: 163
|
Post by mfs on Jul 30, 2011 21:40:54 GMT -5
Looter and Linsal you both ask great questions. Who can sustain the debt? How much can the Arabs support the debt with so little consumption? The Chinese have few natural resources other than labor. We have too much debt and too many restrictions on productivity despite our resources. My brother leaving Bank of America and going to State Street. They are giving him off the months of August and September. They were somewhat upset with his leaving. I did not realize the strength and size of State Street.
|
|
cowboycorn
Hired Hand
schpellin and gramer natzee
Posts: 155
|
Post by cowboycorn on Jul 30, 2011 21:43:05 GMT -5
I started a new thread with this title, but realized it fits this thread, although it really ain't market oriented.
What the heck
----------------------------
Because they know:
we deficit spent 12% of GDP to achieve a 1.3% positive growth number - if they cut ANYTHING we go negative - there is, and has been, no recovery! all we have done is artificially and temporarily goose a collapsed economy- same thing happened in the 1930's! and you want to hear something depressing - had we not bombed all of our world competitors to dust and killed their work forces we might not have come out of the great depression for decades if ever - lots of growth when you are the only game in town rebuilding the world.
|
|
mfs
Hired Hand
Posts: 163
|
Post by mfs on Jul 30, 2011 22:07:03 GMT -5
I will refrain from saying anything to see what others post. You asked a great question.
|
|
|
|
Post by linsal on Jul 31, 2011 7:55:04 GMT -5
I started a new thread with this title, but realized it fits this thread, although it really ain't market oriented. What the heck ---------------------------- Because they know: we deficit spent 12% of GDP to achieve a 1.3% positive growth number - if they cut ANYTHING we go negative - there is, and has been, no recovery! all we have done is artificially and temporarily goose a collapsed economy- same thing happened in the 1930's! and you want to hear something depressing - had we not bombed all of our world competitors to dust and killed their work forces we might not have come out of the great depression for decades if ever - lots of growth when you are the only game in town rebuilding the world. This is an EXCELLENT question for which there is no easy answer. IMO Paul Ryan understands the ramifications of cutting the federal budget too quickly...that is why his plan was spread out over a decade. It was projected to cut federal spending by 6.2 trillion and cut the deficit by 4.4 trillion. For informational purposes, the 2011 fed budget is 3.83 trillion with a projected deficit of 1.5 trillion. Given that our federal gov't is borrowing about 40 cents out of every dollar which it spends, that money (what is being spent) is going somewhere in our economy. Some is going to entities outside our borders, but for the sake of this discussion, let's keep that money out of the picture. Think of the cuts which have to be made to balance the budget. Entire departments will have to be eliminated. Just about anything you see the fed gov't involved in will have to be cut. The interest payments alone eat up a substantial portion of the federal budget. There are many, many federal employees whose positions really need to be eliminated to balance the budget BUT those employees buy homes, buy cars, go out to eat, buy groceries, etc. Take that money out of circulation and we will have a calamity of epidemic proportions on our hands. I assume most folks saw the protesting going on in Madison this past Feb? Well, you ain't seen nothin' yet. This is an old exercise from the NYTimes, but very appropriate. Go through it and make your cuts to balance the budget. www.nytimes.com/interactive/2010/11/13/weekinreview/deficits-graphic.htmlAnd here is a liberal analysis of Paul Ryan's proposal from my liberal friends. www.huffingtonpost.com/2011/04/05/paul-ryan-budget-analysis-numbers_n_844946.htmlMy favorite line from the aforementioned article is: Ryan said a computer simulation program of what would happen in the future “crashes in 2037, because it can’t conceive of any way in which the U.S. economy can continue because of this massive burden of debt.” |
|
|
|
Post by looter on Aug 1, 2011 0:41:04 GMT -5
Cowboycorn raises a legitimate quandary, that is running the "multiplier effect" in reverse for a short period. I say a short period, because firing armies of Federal employees will ultimately lead to finite resources returning to the private sector. But for a few years such austerity would definitely crash the economy. IMHO, that is exactly what is required if we are going to live in a free society. Just get the deflation over with. On the other hand, here's a couple alternative ideas that might possibly avert a deflationary spiral?  (Or not??) 1) Sell off all the public land, or at least 90% of it. 2) Maximize the Laffer Curve. The "Supply Siders" here will love this one haha. Basicly setting taxes across the board at 10% of income. Use nothing but a sales tax to collect it. My reservations with this concept is that its almost Too good at raising revenue. I shutter to imagine the boondoggles we'd come up with if Uncle Sam got buried in money. |
|
(Or not??)