The Kangaroo is Still Hopping
Bruce mentioned yesterday that the 5-year note auction drew thin demand, with a low bid-to-cover ratio, and a steep drop in indirect buyers. This led to a jump in interest rates for both the Fives and the Tens also went up by 13 basis points. meanwhile, investors began moving into corporate paper, instead of treasuries.
I also note that this week saw weaker than expected durable goods orders, atrocious new home sales, and initial unemployment claims still at 442k–which is better than it was last week, but not great.
The “recovery”, apparently is still on pretty shaky ground.
Meanwhile, the new health care reform law attempts to shift a bunch of spending via Medicaid to the states, who are not really in a position to cover those costs, as state tax revenues have sharply declined from 2007.
In short, with a weak economy, we are planning on adding what may be as much as $2 trillion to the deficit over the next 10 years–deficits that are already at $1 trillion per year as far as the eye can see. How neatly that coincides with the announcement that Social Security will run into the red this fiscal year, paying more in benefits than it receives in payroll taxes, six years earlier than previously expected.
So, we got that going for us.
The United States is supposed to be the richest country in the world. But, on our present fiscal course, that cognomen will not attain in a very few years. We simply will not have enough money to service the debt load we will be carrying. In a very real sense, it doesn’t matter whether the Republicans can win in November and repeal the HCR law just passed. Or Cap & Trade. Or Medicare Part D. Or whatever.
We are directly on course to having to run massive inflation by monetizing the debt, or to simply defaulting on it, both of which will result in massively high interest rates, and economic stagnation. With the added bonus of runaway inflation, for good measure.
That this will happen cannot be in serious doubt if we continue our present course. Our fiscal and monetary policies are self-evidently unsustainable.
I can only presume that the Democrats believe that, at the appropriate time, fairies will appear out of thin air to sprinkle magical pixie dust on the economy, and all will be well. The current raft of policies they are proposing to enact will crush the economy. We’ve seen it happen time and again in South America, and now even in the EU, in which the Greeks are headed for a default in the very near future.
What is coming out of Washington is not policy. it is full-scale flight from reality.