Treasury Yields at New Lows

[Zorrofan]

I really think the WH is caught between a rock and a hard place - you can try spending your way out of this, and run up a huge debt doing it. But how long before the rest of the world demands higher interest rates as they watch the debt skyrocket towards $20 trillion? Higher rates which lead to another recession. You can try cutting spending and raising taxes, but you risk another recession. darned if you do, darned if you don't! Bad ending either way. Duration on the debt is low because short-term rates are very low, for now. But when TSHTF rates could explode upwards, at a time the government can least afford higher rates.

 

Packer - I blame Bush for this mess, and big time. Bush repealed the Glass Steagall Act, which allowed the banks to levereage up beyond reason, get involved with derivatives, and here we are today.....my $0.02 on politics.

 

cheers

Zorro

[Carvel46]

Actually, Clinton repealed the Glass-Steagall Act.

http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act

Finance's ideology runs deep in both parties.

 

[Myth465]

I tend to blame Republican's they have an illogical ideology and in my opinion have no principles.

 

As misguided as liberals can be, they tend to mean well and be fairly predictable.

 

When we had a surplus they want tax cuts and spending cuts, when we have deficits they want tax cuts and spending cuts. It seems like they have a hammer, and every problem is a nail.

 

How can you say deficits dont matter, start 2 wars, still cut taxes, and then bitch about the deficit in the middle of an economic collapse which resulted partly from your policies. Democrats tend to want to run counter cyclical policies while republicans basically want to starve the beast regardless of whats going on in the economy / world. They also cling to free markets and no intervention regardless of what bears out or what the facts say.

 

I understand principles and compromise. I dont have a problem with healthcare. There are real and fundamentals differences there and there could be no compromises. On just about everything else the Republicans are fairly unreasonable. Look at financial reform. Who is on the wrong side of that issue?

 

I agree with Zorrofan. The WH is screwed no matter what they do and its largely in gods hands at this point. What the right / Austrians want is for them to basically fall on their sword. No one has answered how the economy will self correct, no one has answered who will increase demand when stimulus is removed?

 

Given that we know the logical conclusion to pulling back, why do it?

[Packer16]

Becasue it may not be what you expect.  Politically it may be bad for the base but as you say the bases of both parties can be out to lunch on many issues.  If you reduce spending when the multiplier is low you may actual be able to retain low interest rate financing.  If you don't, then you will cuase interest rates to go through the roof and you will be forced to cut back versus choosing where and when to cut back.  I think it just provides you more options and flexablity.  More spending just cuts down on the options and boxes you in a corner of either doing something drastic or defaulitng.

 

As for health care, I think there could have been more compromises in allowing the states to try different approaches and see the results rather than trying to ram something through because you think you are going to loose your political support or you want to be remembered for something.  In order to do health care right, you need porlonged support and forcing people to do something without trying alternatives at the state level will only lead to opposition of the type we are now seeing.  Remember you need funding every year to make this work and if you have not built trust by taking baby steps that funding will be endangered and may cuase a repeal backlash that may have unintended consequences (which is what I think will happen).  I think the biggest mistake is not getting a good old fashioned compromise out of health-care bacause the guys driving the train were opportunists not compromisers.  The true genius of the US is compromise and the folks driving the train do not understand this.

 

Packer

 

 

Packer

[Myth465]

With regards to healthcare I am fairly radical. Here is what I wrote in a PM to another member.

 

The solution should have been something fairly far left or far right to cut costs in my opinion. Either cutting out the insurance companies and muscling down big pharma or removing the tie to employee based heathcare and trying to see if individuals make better decisions. This solution is fairly middle of the road and is largely inadequate, but I think he was looking to get something done and put something on the table hoping it would be fixed along the way.

 

I would have split the difference, removed the link to employers by law, and let the states each try out various plans. I am sure Texas would offer little insurance out side of Cat coverage, and Cali would offer free healthcare. The best plan would eventually be adopted by most of the states and we would get to see how a variety of things worked out. There would be issues with people crossing state lines, and issues with people moving when they get sick, but they could have been ironed out.

 

---

 

Realistically though that's political suicide. The second you do that the other party says you are destroying healthcare for 80% of Americans. I dont think there was a viable compromise so I dont have a problem with the ram through.

 

I tend to think most progress in the US is made in a similar manner. It just looks much better in retrospect. I dont see how you can compromise on healthcare, privatizing social security, war, abortion, gay rights, civil rights in the past - or other hot button issues. It just doesnt work and is a winner take all thing inmo. Generally one side wants it and one side doesnt. Bush won some of his fights (for better or worse) and Obama got his lame healthcare bill though. Its on to the next battle. People get annoyed. Republicans get in and we get tax cuts and whatever else they believe in.

 

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Long term spending must be cut. Form a pact to include $1 of military cuts, $1 of entitlement cuts, and $1 of tax increases. Each side must make cuts in equal amounts. Then pick a number say $30 billion or $300 billion and each has to come up with their share. Tax cuts have to be spread equally or progressively.

 

Then pass a second stimulus plan, extend unemployment benefits (reduced benefits - cut them by 10% every 2 months), and do something about the states which are all cutting now. Then have the best minds in Government (it feels weird typing that) select very high return projects for this second stimulus. Finally consider ending 1 of our wars, and close a few redundant international military bases.

 

The problem is you cant do that, when one side is pushing for tax cuts, and complaining about the deficit when they ran up huge ones for years (I thought they didnt matter). If I was President, I would be spending and praying. I think they are screwed either way, but sitting on your hands and hoping it self corrects isnt much of a plan. It was tried by Hover and we know how that worked out.

 

You have a long term deficit problem (medicare, Medicaid, health-care, ssi, and lack of grow), and a short term economic problem. Both have to be kept in focus.

 

---

 

Here is a Krugman Interview with Charlie Rose - http://www.charlierose.com/view/interview/11102      I haven't watched it yet.

Barton Briggs Basically said the same thing - http://www.gurufocus.com/news.php?id=98945

 

I think everyone here knows the rally was a fools rally and the economy is / was still quite sick. Pulling back just doesn't make any sense. Its a situation with a bunch of crappy options and crappy outcomes but that is not a reason to just throw in the towel.

 

[Packer16]

I agree with you on healthcare, both sides did not take advantage of the 50 laboratories we have to try many solutions and see which ones work best and what should be adopted nationally.  This allows time for buy in and to see what works and what doesn't.  What this national system does is force decisions that do not have to be made now based upon a little or no data (a bad situation for any decision maker no matter how wise he or she is).

 

I still think the selective default (stretch out the maturity with lower interest rate) is part of the deficit solution in addition to restructing entitlements and pulling out of the wars.  I am a little more skeptical about the gov't choosing the best technologies to invest in as the history has been pretty poor (remember Carter's alternative fuels disaster).  Most of the innovation has come from a focused effort to solve a defense issue from which this technology could be used for civilian purposes.  I think we should put money into alt fuel research but subsidizing fuel prices to me is like flushing dollars down the drain as the dollars are not focused enough for taxpayer to pay for.  I think a corporate tax reduction could unlock some of the cash in firms' balance sheets.

 

Packer

[Hawk4value]

"...No one has answered how the economy will self correct..."

 

The economy can self correct if their is moral hazard. If people are allowed to get slammed for irresponsible behavior, they will learn a lesson. Unfortunately we have very little moral hazard. The finance reform bill is mostly BS. The biggest problem during the crisis was Fannie and Freddie, and this problem continues today with no end in sight. Guess what: the Bill does not even address this issue. The upper management of these institutions were all politically connected and appointed, they ran these companies into the ground and benefited enormously from bloated salaries, bonuses, stock options. Guess again: no prosecutions are forthcoming for any of these people. Destroy institutions, make the taxpayers pay, no consequences, no moral hazard. Do you really think this is not going to happen again in another way, shape or form. You can count on it.

[Myth465]

Interesting Krugman article. Can we now stop pretending the Republicans care about deficits.

 

http://feedproxy.google.com/~r/EconomistsView/~3/dydCX2HRLEw/paul-krugman-redo-that-voodoo.html

[Packer16]

I think we need to take this representative by representative and leave the parties out of the equation as the opposition is going to take the worse part of each party and make the inference to the whole.  The US is a diverse and bottoms up nation and has very few monolithic aspects.  Portraying opponents as monoliths when they are not is just making you look foolish not the other side. That is why the party of no line is not effective.  People are not that naive.

 

That I think is what the Dems biggest issue is.  If they acknowledged the diversity and tried to build bridges with actual compromise, then they would be easily re-elected.  However, early on they lost patients and decided to it on their own and burned many bridges (even within their own party).  If the mis-representation continues, I would not be surprised to see some Dems after November switch parties as in the Repub party they can make an impact as they do not have a strong centralized leader (sort of the like capitalism (Repubs) versus central planning (Dems) approach to politics).

 

Packer

 

[Myth465]

I think we need to take this representative by representative and leave the parties out of the equation as the opposition is going to take the worse part of each party and make the inference to the whole.  The US is a diverse and bottoms up nation and has very few monolithic aspects.  Portraying opponents as monoliths when they are not is just making you look foolish not the other side. That is why the party of no line is not effective.  People are not that naive.

 

That I think is what the Dems biggest issue is.  If they acknowledged the diversity and tried to build bridges with actual compromise, then they would be easily re-elected.  However, early on they lost patients and decided to it on their own and burned many bridges (even within their own party).  If the mis-representation continues, I would not be surprised to see some Dems after November switch parties as in the Repub party they can make an impact as they do not have a strong centralized leader (sort of the like capitalism (Repubs) versus central planning (Dems) approach to politics).

 

Packer

 

 

I agree about the Rep by Rep part, and believe if you looked at it Rep by Rep you would find a starve the best plan on the Right with few outliers. Look at the Debt commission, which was voted down by the Right.

 

http://thehill.com/blogs/blog-briefing-room/news/77673-obama-calls-on-congress-to-create-its-own-fiscal-commission

 

The party of no in my opinion is reality, effective or not. The Economist has even had several articles detailing the faults of the Republican party, and its far from a liberal rag (Though its not as conservative as people think). How do you compromise with people who say the debt is there biggest concern, then say no tax raises, more tax cuts, no military cuts (with the exception of Ron Paul). It doesnt make sense, and shows the deficit is just a political tool. When deficits didnt matter to Leadership in the White House where was the right or tea party? Lets call a spade a spade.

 

That leaves spending cuts, and you cant cut your way to a balanced budget when you ring fence defense. Where is the compromise. Who on the right minus Ron Paul (I think he is against tax raises though) is saying we need tax raises, defense and spending cuts. The only compromise is what to cut, which isnt much of a compromise. In a compromise you give something up. On every issue what has the right been whiling to give up. They couldnt even vote for Financial Reform, which should have been an easy one.

 

Aside from Scott Brown and Snow, I dont know many Senators on the right willing to compromise, but can name dozens of Liberals that have had to hold their noses and voted yes on bills they have hated. The dems largely suck and are spinless in my opinion, and I cringe when I have to think about which party im a member of. I have claimed both in the past, but now have to go with Independent.

 

----

 

We have a fiscal problem, a serious problem. One side talks a good game but is full of inaction (The Left) and the other side doesnt really care but wants to gain politically (The Right). Spending down, smart tax rises, and a bit of pain for the American public will solve this problem, but you cant get the 51 votes to agree on that. Look at the UK, its the only way to really address a long term problem.

 

Currently the future of the US lies west. California when you have uncontrolled spending with no tax raises, and Arizona when you have controlled but raising spending with no tax raises. We have the far left minus tax rises, and the far right. Neither is very attractive. I am all for whats going on in New Jersey, and I am for cutting fat, meat, and bone if thats what it takes.

 

I know most will dismiss this due to the source but its very interesting with regard to Arizona and shows what will happen should we not get serious about this issue - http://www.democracynow.org/2010/7/15/tea_party_in_sonora_ken_silverstein

 

The most fiscally irresponsible thing to occur, in my lifetime which is relatively short, was cutting taxes during Bushes reign. To tell the American people they can fight 2 wars and not pay for it and deficits don't matter was a huge disservice and was very irresponsible. At least Regan was fighting the cold war, which is one we could have lost.

 

[Hawk4value]

"I am all for whats going on in New Jersey, and I am for cutting fat, meat, and bone if thats what it takes."

 

I concur with the above. I am of the opinion that you need to "starve the beast" and downsize the system. I think everyone can agree that spending in the US is completely out of control. The federal gov't is bankrupt and so are most of the city and state gov'ts. The only thing keeping everything afloat is the gov't's ability to print money. Our politicians use spending to get re-elected, so how can we look to them to curb it. The only way I can think of is to "starve the beast", do everything possible to limit the amount of money available to them for spending. Term limits is one part of the solution, get people out of office before they can entrench themselves, in which case their re-election is always the most important goal. Another important part is to never advocate tax increases. Tax increases create more spendable funds encouraging more irresponsible behavior.

 

[Myth465]

"I am all for whats going on in New Jersey, and I am for cutting fat, meat, and bone if thats what it takes."

 

I concur with the above. I am of the opinion that you need to "starve the beast" and downsize the system. I think everyone can agree that spending in the US is completely out of control. The federal gov't is bankrupt and so are most of the city and state gov'ts. The only thing keeping everything afloat is the gov't's ability to print money. Our politicians use spending to get re-elected, so how can we look to them to curb it. The only way I can think of is to "starve the beast", do everything possible to limit the amount of money available to them for spending. Term limits is one part of the solution, get people out of office before they can entrench themselves, in which case their re-election is always the most important goal. Another important part is to never advocate tax increases. Tax increases create more spendable funds encouraging more irresponsible behavior.

 

 

This inmo is what most of those on the right who are serious about the issue truly believe. I do give you credit for speaking plainly and honestly about it.

[Smazz]

The easiest way to raise taxes and cut spending is to employ people.

 

Now someone go and figure that out!

[Hawk4value]

Just for the record: I am not right or left. I am agnostic and consider myself "practical and rational". Politicians have proven to be poor allocators of capital. If they were investment managers would you give them any money to manage??  I doubt it. So why would I want to give them more and more of my tax money. On the contrary, I want them allocating less capital not more, so I advocate downsizing government by privatizing as many functions as possible such as education for example:  Charter Schools, etc.

[twacowfca]

Just for the record: I am not right or left. I am agnostic and consider myself "practical and rational". Politicians have proven to be poor allocators of capital. If they were investment managers would you give them any money to manage??  I doubt it. So why would I want to give them more and more of my tax money. On the contrary, I want them allocating less capital not more, so I advocate downsizing government by privatizing as many functions as possible such as education for example:  Charter Schools, etc.

 

 

Well said.  Govermental allocation of capital is wasteful.  There is, however one scheme to help those on the lower end of the income scale that has been amazingly successful because it allows lower income people to make their own decisions about allocation.  this was prompted by the late Milton Friedman's advocating using a negative income tax instead of wasting resources through programs where government decides who gets what including many hidden subsidies and restrictions on enterprise.

 

What's that, you say?  What negative income tax?  As usual, in the workings of government, it's not called that. It' called the earned income tax credit.  Low income people who qualify get most of their income taxes withheld returned to them after the end of the tax year.  This program returns sometimes close to 100 cents on the dollar in value that can be used practically, in contrast to the typical government program that wastes a very large part of presumed benefits through frictional costs and allocations that deliver questionable value.  :)

 

[Hawk4value]

Thank-you for your comments Two....

 

Taking it one step further regarding the privitization of gov't programs, and Charter Schools in particular. Who are the biggest critics of Charter Schools???  Teachers that are employed by the Dept of Education, and the Union representatives that are hired by those same teachers, in other words public employee bureaucrats. Why would I even listen to what these people have to say about Charter schools, they are conflicted. Their interests are in direct conflict with the interest of taxpayers. Therefore, the only way to increase the privatization of government, create better capital allocation, and increase efficiency is to mandate it by voting in politicians who have no allegiance to the public employee vested interests. Now even though I am completely agnostic to left or the right, would I hire a Democrat to get this job done. I think we all know the answer to that one.

[Myth465]

In my opinion its a left vs right issue. Both sides are flawed.

 

My thesis is do what you want but pay for it.

 

The thesis I hear from you is starve the government and push the country into crisis because you dont want to pay for it because you have something against government. I think thats irresponsible. The American public has a right to choose free healthcare, expensive good public schools, or whatever else they want. They however need to be told they will be taxed heavily for these things. Government does a horrible job of allocating capital but both parties keep spending money and one is totally against paying for it.

 

I think Ideology needs to be set aside and tough decisions need to be made.

 

This article details my problems with the right.

 

http://economistsview.typepad.com/economistsview/2010/07/the-monumental-hypocrisy-of-the-republican-party.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+EconomistsView+%28Economist%27s+View+%28EconomistsView%29%29&utm_content=Google+Reader

 

   Mr Bartlett: The Republicans don’t have any credibility whatsoever. They squandered whatever they had when they enacted a massive UNFUNDED expansion of Medicare in 2003. Yet they had the nerve to complain about Obama’s health plan, WHICH WAS FULLY PAID FOR according to the Congressional Budget Office. The word “chutzpah” is insufficient to describe how utterly indefensible the Republican position is, intellectually.

 

   Furthermore, Republicans have a completely indefensible position on taxes. In their view, deficits cannot arise from tax cuts. No matter how much taxes are cut, no matter how low revenues go as a share of GDP, tax cuts are never a cause of deficits; they result ONLY AND EXCLUSIVELY from spending—and never from spending put in place by Republicans, such as Medicare Part D, TARP, two unfunded wars, bridges to nowhere, etc—but ONLY from Democratic efforts to stimulate growth, help the unemployed, provide health insurance for those without it, etc.

 

   The monumental hypocrisy of the Republican Party is something amazing to behold. And their dimwitted accomplices in the tea-party movement are not much better. They know that Republicans, far more than Democrats, are responsible for our fiscal mess, but they won’t say so. And they adamantly refuse to put on the table any meaningful programme that would actually reduce spending. Judging by polls, most of them seem to think that all we have to do is cut foreign aid, which represents well less than 1% of the budget.

 

    Unfortunately, I don’t think Democrats have the guts or the stamina to put forward a meaningful deficit-reduction programme because they know—as I do—that it will require higher revenues. But facing big losses in the elections this fall I can’t blame them. That leaves us facing political gridlock between the sensible but cowardly party and the greedy, sociopathic party. Not a pleasant choice for those of us in the sensible, lets-do-what-we-have-to-do-for-the-good-of-the-country independent centre. ...

[Myth465]

Bruce Bartlett (b. October 11, 1951, in Ann Arbor, Michigan) is an American  historian  who turned to writing about supply-side economics. He was a domestic policy adviser to President Ronald Reagan and was a Treasury official under President George H.W. Bush.

 

In August 2009, Bartlett wrote a piece for the Daily Beast in which he attributed the recession of 2009 to George Bush and Republicans, whose policies he claimed resulted in an inferior record of economic performance to those of President Clinton.[11]  In the same editorial, Bartlett wrote that instead of enacting meaningful healthcare reform, President Bush pushed through a costly Medicare drug plan by personally exerting pressure on reluctant conservatives to vote for the program. Bartlett claimed that because reforming Medicare is an important part of getting health costs under control generally, Bush could have used the opportunity to develop a comprehensive health-reform plan and that "y not doing so, he left his party with nothing to offer as an alternative to the Obama plan."[12]  Bartlett concluded:

 

   Until conservatives once again hold Republicans to the same standard they hold Democrats, they will have no credibility and deserve no respect. They can start building some by admitting to themselves that Bush caused many of the problems they are protesting."[13]

 

--------------

 

 

   To understand modern Republican thinking on fiscal policy, we need to go back to perhaps the most politically brilliant (albeit economically unconvincing) idea in the history of fiscal policy: “supply-side economics”. Supply-side economics liberated conservatives from any need to insist on fiscal rectitude and balanced budgets. ... It allowed them to promise lower taxes, lower deficits and, in effect, unchanged spending. Why should people not like this combination? Who does not like a free lunch?

 

   How did supply-side economics bring these benefits? First, it allowed conservatives to ignore deficits. They could argue that, whatever the impact of the tax cuts in the short run, they would bring the budget back into balance, in the longer run. Second, the theory gave an economic justification – the argument from incentives - for lowering taxes on politically important supporters. Finally, if deficits did not, in fact, disappear, conservatives could fall back on the “starve the beast” theory: deficits would create a fiscal crisis that would force the government to cut spending and even destroy the hated welfare state.

 

    In this way, the Republicans were transformed from a balanced-budget party to a tax-cutting party. This innovative stance proved highly politically effective...

 

It sounds like some of you are for bankrupting the country due to Ideology. Sounds extremely irresponsible.

 

 

 

[Hawk4value]

Myth, your points are well taken. I do not espouse myself to be a Republican or Democrat. I look at gov't as an entity that will promote and multiply itself to the detriment of everything in its path. Since gov't does not produce anything, or invent anything, manufacture anything, or innovate new technologies, etc. it must gain sustenence from the private economy for its survival and expansion. Every dollar it sucks out of the real economy is that must less capital that goes into wealth creation and the increase in our standard of living. Now is gov't a necessary evil:  Yes, gov't has certain functions that benefit society like security/defence, regulation, etc, etc. But by and large it should be kept small, unobtrusive, and not populated with career politicians. Term limits for ALL office holders should be implemented as soon as possible. Our founding fathers never intended for there to be career politicians. Career politicians build fiefdoms, increase their power, and gerrymander their districts so they never lose an election. There purpose is to grow gov't just like any CEO would grow their company. 

[RichardGibbons]

Since gov't does not produce anything, or invent anything, manufacture anything, or innovate new technologies, etc.

 

Yeah, except for the Internet, jets, nuclear power, a large proportion of medical discoveries....  DARPA and NASA are fairly innovative.  Governments and universities are largely responsible for most basic research and a huge proportion of the innovation.  Without this basic research, the pace of innovation in the US would be much slower.

 

 

 

[zippy1]

Since gov't does not produce anything, or invent anything, manufacture anything, or innovate new technologies, etc.

Yeah, except for the Internet, jets, nuclear power, a large proportion of medical discoveries....  DARPA and NASA are fairly innovative.  Governments and universities are largely responsible for most basic research and a huge proportion of the innovation.  Without this basic research, the pace of innovation in the US would be much slower.

As a semiconductor device engineering manager, foreign born, trained in US, I do have to agree that a great deal of fundamental research in semiconductors was done under the support of the government.    I always wonder why my home country did not do as much in fundamental research.  USENET certainly is another major innovation with government sponsorship.  I still remember back in 1989, I was typing email in ASCII, sending them via USENET and wondering why no one in my home country ever thought of building the same thing.

[Hawk4value]

I am all for gov't grant money for private or university research. In fact this is an example of good capital allocation which can generate huge returns in incremental benefit to society. But the key issue here is that for the most part gov't supplies the capital but does not actually conduct the research or discover anything. Even so, it is my firm belief that the majority of gov't capital allocation is poor and in fact detrimental to society. "Starve the beast" continues to be my motto.

[Myth465]

Fair enough Hawk but you are risking the Republic for Ideology. Risking bankruptcy due to your personal thoughts on taxation and asset allocation.

 

Its very irresponsible, and those that advocate it shouldn't be allowed to pretend they are taking the noble role or are willing to compromise.

[ERICOPOLY]

I found this interesting to get a grasp of where public sector budgets are allocated:

 

http://www.usgovernmentspending.com/us_education_spending_20.html

[JEast]

As an interesting statistical view, I heard on a recent Consuela Mack episode that the 90-day Treasury Bill has outperformed the S&P 500 every quarter since 1997.  If true, wow!  At the current rate of about 0.17%, that streak may be about over. Or is it?

 

 

Cheers

James