Thursday, August 18, 2011

Fear has been trampled by panic

As this chart of 10-yr Treasury yields and the year over year change in Core CPI suggests, the Treasury market is zigging when it should be zagging. Yields have plunged on fears of a double-dip recession, which in turn are being driven by fears of a financial market meltdown in Europe. The fears embodied in today's 2.0% 10-yr Treasury yields eclipse even those that prevailed at the end of 2008 when markets were convinced that The End of the World As We Know It was just around the corner.

While there are certainly many things to worry about, one of which is the half-trillion dollar run on European banks that I discussed a few days ago, I think that fear has been trampled by panic these past few weeks. There has been no deterioration in the fundamentals of the U.S. economy. Things are far from perfect, to be sure, since we are suffering from monetary policy which is too easy and fiscal policy which is smothering the private sector, the combination of which has resuscitated a moderate form of the 1970s stagflation. But even then it was not the end of the world, as the economy managed to grow 3.3% per year on average during that otherwise-awful decade.


Benjamin Cole said...

I do not find it surprising that there is fear and panic out there.

Have you listened to talk radio? The right-wing is fear-mongering about Zimbabwe inflation, economic collapse, and America in ruins under a Islamic-commie President.

You have Governor Perry braying that Ben Bernanke is engaging in "treasonous" behavior. What are laymen supposed to make out of that? A plot to destroy America at a mysterious central bank?

You have powerful elements who would like the economy to tank so they can blame Obama and get him out of office (I almost sympathize with this, but only almost).

We are still stuck in two wars, and we won;t win either one of them. We might not lose in Iraq, but even that is iffy. Cost $4 trillion.

People's homes--usually their largest investment--are going down in value.

Gold is fanned every day by fear-mongers (some on left-wing outfits too).

I wish I had listened to the gold nuts.

Then we have European nations so poorly run they welch on their debts (thought they should have never given up the right to sovereign currency).

John said...

The economy suffers from maldistribution. There's tons of cash sitting around, but the ones who have it are either sitting on it or speculating.

The new CPI numbers, boosted by gas prices, are already obsolete. Gas prices are down in August.

If Joe Sixpack had a raise, he'd buy stuff. Joe doesn't need a loan. Probably doesn't qualify, anyway. He needs a raise.

Jeff said...

Can you say 'stagflation'?

TradingStrategyLetter - Weekly Summary said...

The sad and scarey part of this is that there is NO plan or strategy to fix and repair these problems. The disfunction and incompetence is palpable. The wealth distruction has been criminal! At best leadership only reacts to the latest economic stat and manages by crisis. Hope and confidence is withering like the last rose of summer. The 'American Dream' now looks like a mere romantic chapter in the history books!

Jeff said...

Benji, you are right on. This whole thing is Rush's fault. He and Hannity. Oh yea, and Levine. And dont forget all those tea-part terrorists out there in the heartland.

It's ALL THEIR FAULT. If we just got rid of them all everything would be fine.

Bush got us into this mess! It's his fault. Bush spent, people...umm...bent! Bent over backwards. Yeah. That's it.

If we could just tax more, spend more, QE more, inflate, bring the dollar down, et al then everything would be fine. We'd all be whistling Zip-A-Dee-Doo-Dah out of our assholes!

Right Benji? you tell em!

Jeff said...

Oh, and while we are at it, let's finally pass the Community Radio Act forcing local stations to carry local content instead of the evil, national, right-wing radical programs like Rush, Hannity, Lavine, Beck, and the rest.

We need to take that hate speech off the air! It is the cause of all our economic problems.

Oh and ban individual ownership of gold!!

Right Benji!!??

BTW, you are complete idiot.

TradingStrategyLetter - Weekly Summary said...

Can someone explain to me why all those financial masterminds and manipulators who have ruined so much of the great United States of American shouldn't be lined up and shot? (ala R. Perry)

Benjamin Cole said...


I admit I was an idiot to ever vote for Bush jr.

Benjamin Cole said...

Five year bond yields are now under 0.90 percent.

How anyone can say the markets expect inflation is beyond me.

We are being Japanned.

Jeff said...

No, an idiot is someone who does the same thing over and over again expecting different results.

Benjamin Cole said...


Your definition of idiocy applies perfectly to the Bank of Japan.

I am for changing policies to meet the current reality.

BTW, read up on Friedman and Japan.

This is Friedman as printed by Hoover Institution. If you get any more right-wing than that, you have involuntary arm spasms when you play martial music.

Friedman tells them to print lots of money.

It is a misnomer that classic economists believe ever in tight money, as evidenced by Friedman's commentary and advice to Japan.

I suspect if Mitt Romney wins in 2012 (and I could live with that) the tenor of right-wing punditry will change, and there will be less inflation-hysteria talk.

Even the bilious knave Gov. Perry only lambasted monetary expansion before the election.

After? Depends who wins.

TradingStrategyLetter - Weekly Summary said...

'We are being Japanned' because the same dopey real estate, banking, and interest rate policies mistakes were made. And now the US is the donkey 'carry trade' currency of the world.

Once that happens you lose many choices and control. If you are a 'non-nutty' left wing bone head who fans inflationary flames and 'stimulates' a hopeless devaluation policy it is the beginning of the end!

That psuedo economic theory has NEVER worked ANYWHERE! Once it takes full effect you are left with NO choices or NO alternatives.

If you are reliant on net external borrowing then you are officially F'd! Once the official 'shared sacrifice' unemployment rate hits 20% everyone will figure it out!

trying2notbestupid said...

If, "There has been no deterioration in the fundamentals of the U.S. economy." - then how do you explain the negative readings from both the emipire state and the philly fed numbers? I don't think we've ever had a -30 on the Philly Fed and NOT had a recession.

I'm not predicting one, just trying to sort out conflicting data.

Scott Grannis said...

The regional Fed numbers can be very erratic, so I don't put much faith in them. So many other indicators are registering normal or at least are not negative that it's hard for me to believe a recession is imminent: e.g., weekly claims are flat, jobs are growing, money is growing, real interest rates are negative, retail sales are rising, capital spending is rising, corporate profits are at record levels, the yield curve is steep, exports are strong, commodity prices are still quite high and holding, housing is flat, bank lending is rising, industrial production is rising, swap spreads are normal. I don't think recessions are ever heralded by just one number turning down, you have to have some broad-based deterioration to get a recession.

vg said...

When will you people stop trying to blame Bush for everything? His total deficits combined are less than our current President's first year deficit. It's the SPENDING, stupid! It doesn't matter who is doing it; you can't perpetually spend more than you make, and despite the rhetoric, confiscating ALL the wealth of the "Rich" wouldn't solve the problems, because no matter how much the government makes, it wants to spend more. It's the SPENDING, stupid!!!