Upside Down U.S. Economic Lunacy!

Today is “S” Day – Shutdown Day!

If the United States Congress fails to pass a budget or a continuing resolution before midnight tonight, the federal government will have to start shutting down. All agree, chaos will result.

The last time that happened was back in the mid-1990’s during the Clinton Administration.

Disagreement over Obamacare is the stumbling block this time. It’s the talk of the town in Washington DC. Pig-headed politicians on both sides of the isle have dug in their heels.

Instead of talking about that, I’m going to talk about something that makes even less sense than that – U.S. Treasury yields!!

What you talkin’ about, Willis?

The chart above shows September’s daily 10-year yields. Trend line is down.
(Source: http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield )

Government bond yields are generally a reflection of the overall strength of a nation’s economy. The weaker a nation’s economy or the less confident investors become, the higher the yields. Increased investor risk means governments have to offer higher interest rate yields to sell them to fund their debt.

Don’t believe me? Just ask Greece, Italy, Ireland, Spain… etc., etc., etc.

That’s how things work in Europe and the world. It isn’t how things work in the USA.

Though not totally in the toilet bowl anymore, the U.S. economy remains fragile. The budget battle and the looming war over raising the debt limit have totally trashed investor confidence. The equity markets are tanking today.

Instead of going up like a rocket as they do everywhere else, U.S. Treasury yields are sliding down a happy, but slippery slope. They have for years. Why?

Of course, there are a number of mitigating factors that come into play:

  • The rest of the world’s economy generally sucks
  • The U.S. dollar is the currency of world trade
  • Fed monetary policy (quantitative easing)
  • Political bickering is just that – bickering

Those holding Nobel Prizes in economics tell us U.S. government bonds are a “safe haven” investment in bad economic times because the U.S. dollar is the currency of global trade.

Does that work even when the U.S. economy and massive, unchecked U.S. government spending are the problem?

If the dollar collapses, the world economy flushes down the toilet to.

I know, I know… I’m doing a lot of trashy potty talk today. Sorry.

But, for the life of me, I can’t understand why U.S. bond yields are falling – indicating a strong U.S. economy – when most economic indicators and U.S. government action says totally the opposite is true.

Will someone PLEASE explain that to me?

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Sep 30, 2013, in Bonds, Budget, Business, economics, Economy, Government, Jobs, news, Politics, Taxes. Bookmark the permalink. 2 Comments.

  1. You already put your finger on it Az. The US economy is head and shoulders above the rest. Demand for US Bonds is high throughout the world and that drives down yields, hell even the Chinese can’t get enough.

    Jobs are coming back from China thanks to cheap natural gas and the incredible spirit of American businessmen. It has bugger all to do with Obama and his posse, it is in spite of him. Even the Fed has defied Obama and continues to do the right thing.

    America! It is the biggest, bestest most innovative country in the world. Even the government can’t stop that.

    • I don’t wanna burst anyone’s bubble, but…

      Item #1
      The U.S. federal debt is about $17 trillion. It’s higher than the listed $16.7T because we reached the debt limit back in May and have been operating in emergency mode ever since. The feds will spend literally every cent, including all the federal pension funds in less than 3 weeks.
      http://www.treasurydirect.gov/NP/debt/current

      Item #2
      China holds $1.277 trillion of US federal debt… a fraction of the total.
      Total foreign debt holders own $3.995 trillion… 25% of total U.S.federal debt
      http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

      China’s total holdings is only slight more than a year’s worth of federal debt growth.

      So who is buying up all the debt?
      Ans: Some large non-government investors are but, BY FAR, The Fed and the federal government itself is buying its own debt!

      THAT, is what is ARTIFICIALLY keeping yields low. 😦

      Robbing Peter to pay Paul can’t last forever.

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