Free Markets, Free People

Greenspan: Treasury yields “canary in the mine”

Former Federal Reserve chief Alan Greenspan has commented on the recent sale of treasury bonds we commented on here and talked about on the podcast. They have him worried:

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%.

Says Greenspan:

“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.

For instance:

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.

Another example:

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.



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10 Responses to Greenspan: Treasury yields “canary in the mine”

  • For 8 years Obama and the left demonized Bush for everything he did. Now, when pressed, the best defense they can utter for most things is “Bush did it too!”


  • If McCain or anyone else had won in 2008, the story would be essentially the same.   You can blame Obama, but his stimulus package is not the reason for all these problems.  Without it, we’d be in worse shape economically, and without the bailouts of Bush in 2008 we’d have fallen into catastrophic recession/depression.  What you’re seeing now is the result of decisions made starting in 1982 as we left the last recession.   Ultimately we’ll have to cut spending AND raise taxes, the gaps are too big to be filled by just one.  There will also have to be more government intervention in markets to control costs, especially in the health care field.    But to think that this is just Obama, or even Obama and Bush is to miss the big picture.
    Now, perhaps Obama’s approach is wrong — but what is the alternative?   Just saying “cut taxes” and “let the market do it” seems like an appeal to alchemy.  That’s not a solution, that’s a slogan and a leap of faith unwarranted by what de-regulation has already brought.   I’ve been noting this serious decline and economic problem for over a decade, posting about it here and in my own blog, getting ridiculed as a ‘declinist.’   Well, it looks like some of you are finally seeing the light.   Next step: don’t just blame one side or the other, but figure out how to deal with what’s happening.  Obama’s advisors aren’t idiots, they understand the dangers and they’re going with what they hope can work.
    It would be nice for a serious effort to be made by the Republicans or others to engage the issues, and put aside name calling and ideological jihads to figure out what needs to be done to solve the problems.

    • For a change, I can partially agree with Scott.  If McCain had won, we would have tread partially down the same path.  I doubt, though, McCain would have outsourced such a huge stimulus to Pelosi nor do I think the size or allocations would be the same.  I also seriously doubt McCain would have thrown all fiscal discipline to the winds as Obama has.
      There are serious differences of opinion if the Bush/Paulson TARP bailouts prevented a depression or just have worked to extend the pain.  We can look at all the fiscal problems of the government and ask ourselves how these guys could seriously think about managing the financial sector.
      No Scott.  Just saying “cut taxes” and “let the market do it” is a strategy, not a slogan.  Just like no decision is a decision,  doing nothing is a strategy.  Unfortunately, too many people like you don’t think it is a strategy, so they rush in and make things worse with their “strategy”.  There is every bit as much a “leap of faith” with an alternative strategy as their is with doing nothing.
      What a surprise.  it turns out I don’t much agree with Scott after all.  Oh, and Obama’s advisers are idiots.   Can you say Lawrence O’Donnell.  How did that Harvard gig work out again?  How did the endowment do?  What did Rohmer write about tax cuts vs government spending before she was offered a job in the administration?

  • “Next step: don’t just blame one side or the other, but figure out how to deal with what’s happening..It would be nice for a serious effort to be made by the Republicans or others to engage the issues, and put aside name calling and ideological jihads to figure out what needs to be done to solve the problems.”
    I believe that Professor Erb is not being perfectly serious here.  How did he deal with the Republicans offering specific ideas to solve the need for healthcare reform?  Anyone remember even one such idea he seconded (other than to suggest that it might be “considered” someday)?  Did he put aside name calling?  Did he refuse to conduct an ideological jihad?
    You see, so long as the discussion is couched in generalities, Professor Erb takes pains to sound like a reasonable person. He wants to be seen as a reasonable person, open to good ideas wherever they come from.  But watch him when the discussion turns to specifics.  Like President Obama, one will then hear a version of “hey, that was when we were just talkin” (“campaigning”, in President Obama’s case).  Or he will vote absent.  In both cases one is left to speculate if they are active dissemblers or they merely lack introspection.  I know what I think.

  • I actually did say that I thought the Republicans raised a lot of good ideas, and in my own blog I wrote that I thought Scott Brown’s idea of eschewing a national effort and focusing on states making individual reforms might be a way towards an alternative.   I also believe I stated that I think malpractice lawsuits need to be minimized, and have been critical of the role of the pharmaceutical industry in Obama’s plan.   You make a charge against me, Notherbob, but without evidence — also, note that Obama’s bill did have a lot of GOP ideas that were incorporated, even without getting GOP support.
    When did I conduct an ideological jihad?  I think ideology is dangerous and misleading, it creates artificial understandings of a complex reality.  I favor pragmatism (note also that I have often praised President Bush in his second term).   So my own blog and comments here demonstrate that I do take seriously other ideas.   Here’s the difference — people here tend to name call, trash talk, or like you, simply assert nasty things about me.  When I get that, yeah, I’ll respond back with a snide or arrogant comment, and maybe throw in an insult.   I don’t think I do it as much as others, but hey — sometimes you gotta respond to trash talk.   But when people make a reasonable argument without personal insults, I never respond in a way that is disrespectful or insulting.   And I will always respond to specific ideas and arguments.   I’ve gotten into specifics quite often.   When people here speak of the horrors of the health care bill, I note the reality of how its done elsewhere, without major problems.   When there is doom and gloom about a potential 90% Debt to GDP ratio, I note that’s really bad and I think Obama has to make spending cuts (and I note I’ll criticize him if he doesn’t), but I’ll also recognize that Japan is nearing a 200% debt to GDP ratio.   They’re in tough times, but their country hasn’t fallen apart.
    I think you are lacking introspection here.  I think you agree with the very strong ideological bias of the blog (which is fine), and are simply “piling on” without really considering what I write, and without trying to seriously engage.   Anyone can do that; I suppose it can be fun.    But I wouldn’t treat you like that.  It gets mocked, but I do have a kind of “let’s all get along” personality, and do try to see others not as political enemies, but other intelligent people who have a different perspective.  I like to think as Americans we can communicate and not hold grudges.   In fact, the ability not to hold a grudge is a trait I respect (and one that I respect from former President George W. Bush).

  • I owe an extra $10,500 in AMT this year. Can I put this “off-budget” somehow?

  • “Republicans raised a lot of good ideas… malpractice lawsuits need to be minimized… I think ideology is dangerous…I favor pragmatism” Ah yes, one of the finer suits of lamb’s clothing I have seen – almost as good as the one President Obama wore in the recent campaign.
    “…when people make a reasonable argument without personal insults, I never respond in a way that is disrespectful or insulting.   And I will always respond to specific ideas and arguments.”
    Whether presenting us with the Liberal Narrative is insulting, I will leave to the judgement of others.  It certainly insults our intelligence.  What also is insulting is pretending now that you are not here to propagandize – implicitly asking us to not hold you responsible for your past excrescencies here.

    • The “liberal narrative?”  We’re talking real issues and arguments.  To label something and dismiss it without dealing with the issues is weak thinking.  Also, if I wanted to propagandize, I wouldn’t come to this site.  You guys have your minds made up, it seems.  But there are interesting ideas and perspectives here, and since I truly believe that our future requires communication and compromises that work against the kind of ideological jihadism too many on the right and left show, I want to deal with ideas.  Competing narratives are something that will prevent us from solving problems.   Reality doesn’t fit in anybody’s narratives, and only by communicating and listening to each other — with respect — will we move beyond partisan “narratives.”
      And perhaps that is what bugs some of you the most, you some to enjoy the idea of politics as contact sport with teams defending their “narratives.”  I think that could destroy our ability to solve problems, and potentially assure the country’s continued decline, no matter who is President.