Greenspan: Treasury yields “canary in the mine”
Former Federal Reserve Chairman Alan Greenspan said the recent rise in Treasury yields represents a “canary in the mine” that may signal further gains in interest rates.
Higher yields reflect investor concerns over “this huge overhang of federal debt which we have never seen before,” Greenspan said in an interview today on Bloomberg Television’s “Political Capital With Al Hunt.”
“I’m very much concerned about the fiscal situation,” said Greenspan, 84, who headed the central bank from 1987 to 2006. An increase in long-term interest rates “will make the housing recovery very difficult to implement and put a dampening on capital investment as well.”
When investors go to bonds, they’re looking for security. If they want higher risk, stocks are ready when they are. What Greenspan is talking about is this:
The Treasury Department sold $42 billion in 5-year notes on Wednesday at 2.605%, higher than traders had anticipated. Bidders offered to buy 2.55 times the amount debt being sold, the lowest since September. That metric of investor demand also compares to 2.74 times on average at the last four sales of the securities, all for the same amount. Indirect bidders — a class of investors that includes foreign central banks — bought 39.6% of the offering, compared to an average of 49.6% of recent sales and the lowest since July. Direct bidders, including domestic money managers, purchased another 10.8%, versus 9% on average. After the auction, yields remained sharply higher in the broader government-bond market as corporate and other higher-risk debt drew investors away from Treasurys. Yields on 10-year notes, which move inversely to prices, rose 13 basis points to 3.81%.
“I don’t like American politics and what’s happening,” Greenspan said.
Historically, there has been “a large buffer between the level of our federal debt and our capacity to borrow,” he said. “That’s narrowing. And I’m finding it very difficult to look into the future and not worry about that.”
Well join the club – I don’t like what’s happening either. Nor do a whole bunch of other Americans. And a clue to our addled leftist friends – it has nothing to do with the race of our president. Instead it has to do with the ideology that he and Democratic leadership are pursuing to the detriment of the country and its solvency.
Back to the line I italicized in Greenspan’s statement. What does it mean? The obvious – continued economic problems, continued high unemployment and slow expansion. The message? The debt is out of hand, and it isn’t being addressed in any meaningful way.
The Obama Administration is asking for $2.8 billion to help with ongoing disaster efforts in that Caribbean nation, responding to the devastating earthquake that struck Haiti in January.
“This request responds to urgent and essential needs,” wrote President Obama in a letter sent to Congressional leaders last week. “Therefore, I request these proposals be considered as emergency requirements.”
Let me translate that for you: “Therefore, I request that these amount of money needed for these proposals not be paid for, with the cost of the bill simply added to the deficit.”
That’s what “emergency” spending means in the Congress. It doesn’t go on the yearly deficit figure, but it does get added to the overall federal debt.
Now for those who are going to scream, “but Bush did it with the war”, I agree. Yes, he did it. And doing that was wrong. Clear enough? So whether it is for war or relief, it needs to be “on budget” – that’s if all the nonsense for Obama and the Democrats about PAYGO is to be believed.
Last week Democrats in the House approved a $5.1 billion emergency disaster bill to pump more money into FEMA. While there weren’t any pork barrel items attached to that bill, the Democrats did add on a $600 million Summer Youth Jobs initiative, along with $60 million for a small business loan program.
And the $5.1 billion disaster aid had the necessary verbiage to keep it “off budget”.
“EMERGENCY DESIGNATION – SEC. 102. Each amount in this Act is designated as an emergency requirement and necessary to meet emergency needs pursuant to sections 403 and 423(b) of S. Con. Res. 13 (111th Congress), the concurrent resolution on the budget for fiscal year 2010.”
In other words, the cost does not have to be offset.
Unacceptable. Unacceptable when George Bush and the GOP did it. Unacceptable when Barack Obama and the Democrats do it.
They need to understand and be reminded that such avoidance of the PAYGO law requiring new spending be offset by cuts elsewhere is to be followed to the letter. Certainly there may be real emergencies, but the money spent is just as real. If we have emergencies that require immediate spending, then fine – give Congress some time (90? 120 days?) to find the offsets. But this nonsense about whatever they decide to call an “emergency” is off budget – to include wars – has to stop and stop now.
The money spent is real, the debt becomes larger – the fact that politicians pretend it doesn’t add to the deficit is insane and borders on criminal fraud and is certainly no better than Enron accounting.