Saturday, March 27, 2010

Ice Scatters Across Deck of Titanic

The US economy is the most robust and diverse in the world. Nevertheless mindless meddling on the part of the Federal government is showing signs of cracking the entire enterprise, putting the nation in a degree of instability hitherto only known in banana republics and more recently in out of control socialist democracies like Greece. Not wanting to remain outside the loop, the Obama administration has called for full speed ahead through the ice fields before us, with the US bond market (how the nation finances its debt) showing signs of major distress.
"A long period of stability for the US government bond market showed signs of cracking this week as a lack of investor appetite for new debt sent the benchmark 10-year yield to its highest level since last June."

For the past year and a half economic analysts have warned that record sized debt sales by the US Treasury were going to impact yield rates, which had been holding steady over time, with a 10-year yield sitting comfortably below 4 per cent. This week, the yield on 10-year notes jumped from 3.65 per cent to 3.87 per cent, with no signs that the increasing rate will stop its rise.

"Falling inflation, rising unemployment, the housing market slump, the Federal Reserve’s policies of a near zero overnight borrowing rate and its purchase of up to $1,700bn in bonds have all helped keep Treasury yields near historic lows."

That little bn stands for BILLION, as in 1,700 BILLION dollars in bonds purchased by the Federal Reserve.
But this week the mood shifted as yields for $118bn of new US debt were much higher than forecast, sparking overall selling of Treasuries

Nothing to worry about. Just a touch of ice scattered across the deck. Everything is fine. Carry on with the music and dancing.

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