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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: skinowski who wrote (109175)	3/1/2010 12:42:11 PM
From: Hawkmoon	1 Recommendation Read Replies (2) \| Respond to of 116555

Right now, we are witnessing the failure of the model which claims that increased governmental borrowing and spending will "jump start" the economy In the manner in which they are doing that spending, yes.. you're correct. Here's the way I see it. There is a tremendous amount of "dead capital" sitting in T-Bills right now. "Scared" money fled from the private equity and debt markets and sought "safe" haven in T-bills, causing yields to plunge. That's one of the reasons the government had to do a stimulus- to provide additional supply of T-bills, or else yields on the existing 10/30 T-bills would likely be sitting near 1-2% instead of where they are now (3.62% for the 10yr and 4.57% for the 30yr). I mean, if there hadn't been a huge demand for gov't debt, rates should be much higher than they are currently, right? NOW.. Here's the government taking on debt that the private market is unwilling/unable to issue in order to sustain economic activity. The SMART WAY of using that stimulus would have been for the government to take the opportunity to coordinate projects (infrastructure, R&D.. etc) and support for Venture Capital investment that would spur new economic activity and productivity. But they are p*ssing away that stimulus package. Adding people to the Federal payroll, instead of contracting with private industry to spur economic activity. We don't reduce unemployment by putting people on the permanent Federal payroll. That's something I think we all can agree on. Long term gov't investment in projects that the private market is unwilling to finance due to market risk or lack of short-term profit is where I think stimulus money is best spent. Again, Venture Capitalists put skin in the game and normally are playing for the long-term gain. Why the Federal government doesn't do the same is beyond me. I would also like to see stimulus money spent in a manner where it consists of loans, or equity stakes, that will repay the taxpayers in the future. But let me also reiterate, part of the reason that private finance is unwilling to lend is due to the lack of financial surety as that sector has been decimated. No means of insuring against financial risk, no lending. Which means part of healing the financial system is contingent on healing the financial surety sector. And IMO, the first primary focus in accomplishing that is regulating Credit Default Swaps that pay people to destroy the underlying bonds and venture equity. Only folks with insurable interests should be permitted to act as counter-parties in a CDS transaction. Hawk