Heinz on interest rates
Date: Tue Nov 16 2004 11:01
trotsky (frustrated@yield curve) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
one can say that generally, an inversion of the yield curve hurts those sectors of the economy the most that are most dependent on continued credit bubble expansion ( banks, housing, junk debt issuers,credit insurers, mortgage lenders, etc. ) . this is because an inverted yield curve hurts the profit margins of the entire 'borrow short lend long' game, which is essentially the game the banks play in the fiat regime. when their profit margins for newly issued credit get squeezed, it induces them to pull in and not lend as much as previously.
one mustn't forget there are enormous leveraged positions at stake here, since fractional reserve banking tends to expand outstanding credit way beyond what is covered by deposits. so additional short term funds have to be borrowed all the time and must be regularly rolled over.
as an aside, since the Fed has dropped ST rates to multi decade lows and announced for quite some time that those low rates were here to stay, US based debtors exposure to short term debt is gigantic ( for instance, many corporations are up to their eyeballs in short term commercial paper ) . so one could argue that the effect of hiking ST rates is magnified these days compared to more normal times.
Date: Tue Nov 16 2004 10:15
trotsky (long bond) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
i see the long bond's unchanged now, after a big PPI number.
now why might that be?
the reason is imo that the bond market is looking beyond this number and concluding that it might tempt the Fed to invert the yield curve ( which already looks a bit like Fallujah, i.e. flattened ) .
this couldn't possibly happen at a worse time of course, with the housing bubble teetering on the brink and the economy in its weakest post WW2 recovery, which is largely a statistical artefact anyway ( i.e., if we discarded hedonic indexing, no-one would even think about calling it a recovery ) .
the danger of letting a bunch of bureaucrats decide what short term interest rates 'should' be is about to be demonstrated again. |
