The Disgusting Truth
Halloween Night, 2001
(these 50 year graphs are 6 months old, but valid)
Peter Fisher and the US Treasury are liars... it's black and white. He says "in all likelihood, people will realize that the notion of deficit spending is temporary" (paraphrased).
The FACT is that the surplus in the first place was an extension of the unprecedented rise in capital gains tax receipts during the late nineties... it was what was temporary... a fact that seems impossible to repeat unless stock markets reenter the super bull market phase of the late nineties, an endeavor that is NOT likely! The comments made by Treasury officials to the contrary are nothing but hopeful speculation, and it is a crime that they do not say as much.
There are only two reasons that this announcement was made... first, in the hope that investors will drive down bond yields, in the meantime, which will lower the interest payments that the government has to pay on its debt.
But this confidence game doesn't stop with how much interest has to be coughed up. It has been our view that the risk of an equity fallout is to the dollar.
Clearly, (second reason) the intention is that foreign investors will think twice about selling dollars if US treasuries are rallying, and without a single question in my mind, these two issues are the only reasons that the US Treasury department chose to suspend the issue of 30 year bonds. Not because they anticipate no deficit spending, for that would imply a recovery in stocks, and a return to the stock market ecnomy of old, something that is increasingly speculative to presume.
WHAT EVIDENCE CAN POLICYMAKERS POINT TO IN ORDER TO SUBSTANTIATE THEIR CLAIM OF RECOVERY? DARN RIGHT WE'RE MAD! WHERE IS OUR ECONOMIC FREEDOM?
|Despite that truth, bond bulls bid up bond prices and drove down yields across the yield curve today as per (the implicit) instructions from their boss. Fisher's future, as a result of perpetuating this nonsense, is limited, and his name is destined to accompany Larry Summers' name in the hall of shame. Undoubtedly, the lower yields will fuel inflation and lower the interest rate advantage to the dollar. The mistake policymakers are about to make is in overlooking how the dollar will handle the lower yields. Their hope is that the lower yields boost the stock market and support the dollar.
ALL HOPE SHOULD BE SOLD!