Interest rates are low because there are no jobs and credit burdon would become unmanageable at higher rates.
This doesn't make a great deal of sense to me mishedlo..
Were US credit worthiness such an issue, interest rates would reflect this in higher rates (higher risk).
One thing many folks forget is that while certain events (joblessness, out-sourcing to China.. etc) might be issues of concern here in the US, they are magnified in Europe where economic stagnation and unemployment are far greater burdens on that continent.
Rates are low because there is a surplus of cash on the sidelines without a worthwhile place to be invested. Stock indices have rebounded, but even the recent economic growth can't keep pace with the amount of cash building up on the sidelines waiting to be deployed. So it finds itself placed in bonds and real estate.
Furthermore, with the trade deficit maintaining, or even growing, over the near term, Europe and Asia have a vested interest in maintaining weakness in their own currencies and strength in the US dollar.
Furthermore, while the US budget deficit and unfunded liabilities are a troubling issue, they pale in comparison to those of Japan and Europe. Japan's national debt equates to 140% of its annual GDP, while that of the US equals some 70%. Europe is facing similar budget deficits and liabilities as a result of their massive entitlement programs and the odds are that they will not be able to generate the political will to fully adopt the necessary restructuring efforts (especially with socialists in power in Spain and "old European" leaders unwilling to advance them).
Finally, Greenspan warned the world about China's fragile financial system, where some theorize that some 50% of outstanding loans are non-performing (shades of Japan).
So the world's financial markets look for a secure place to put their excess dollars, as well as their own capital, and the best place is the US. And to keep the US dollar from increasing to export retarding levels, the US treasury has to accomodate the demand for US T-Bill paper.
Furthermore, the Fed requires more liquidity in the T-Bill market with which to conducts its operations without overly influencing the interest rates in that market.
All of this suggests that focusing on the problems in the US may merely be masking the even greater challenges around the world for international pools of capital.
Hawk |
