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Politics : The Obama - Clinton Disaster -- Ignore unavailable to you. Want to Upgrade?

To: Wayners who wrote (34386)	7/27/2010 2:53:01 AM
From: DuckTapeSunroof	Read Replies (1) \| Respond to of 103300

Re: "predicting that yields on US Treasuries will rocket to 5.5pc." (I would regard a 5.5% yield on the long bond as a 'normalized', actually fairly benign and pro-growth rate... were that the rate and were these more average economic conditions. Clearly not a 'too high' yield though....) Re: "This has not happened so far. 10-year yields have fallen below 3pc, and M2 velocity has remained at historic lows of 1.72." He is correct. It (inflation) certainly is nowhere to be found in the economic data right now. In fact, the MONEY SUPPLY has cratered. Between 2008 and the start of 2010 Global Real Money growth rate dropped like a rock to WELL BELOW 1% where it sits now.... Deflation, too, is also associated with massive wealth destruction..... <John Mauldin> Falling home prices and a weak housing market are one more element of deflation. This is happening not just in the US, but also much of Europe is suffering a real estate crisis. Japan has seen its real estate market fall almost 90% in some cities, and that is part of the reason they have had 20 years with no job growth, and that the nominal GDP is where it was 17 years ago. In the short run, reducing government spending (in the US at local, state, and federal levels) is deflationary in the short run. Martin Wolfe, in the Financial Times, wrote the following last week (arguing that that the move to "fiscal austerity" is ill-advised): "We can see two huge threats in front of us. The first is the failure to recognize the strength of the deflationary pressures ... The danger that premature fiscal and monetary tightening will end up tipping the world economy back into recession is not small, even if the largest emerging countries should be well able to protect themselves. The second threat is failure to secure the medium-term structural shifts in fiscal positions, in management of the financial sector and in export-dependency, that are needed if a sustained and healthy global recovery is to occur." Finally, high and chronic unemployment is deflationary. It reduces final demand as people simply don't have the money to buy things. ... Excess excess production capacity also often coincides with disinflation or deflation. It is hard to have pricing power when your competition also has more capacity than he wants, so he prices his product as low as he can to make a profit, but also to get the sale. The world is awash in excess capacity now. Eventually we either grow the economy to utilize that capacity or it will be taken offline through bankruptcy, a reduction in capacity (as when businesses lay off employees), or businesses simply exiting their industries.... In the US the Federal Reserve tells us that capacity utilization is down below 75% now... lots of idle production. Businessweek: Two-year Treasurys get lowest-ever yield For all the criticism of record budget deficits, President Barack Obama can take comfort knowing that for the first time in half a century, government bond yields are declining during an economic expansion and Treasury secretary Timothy Geithner is selling two-year notes with the lowest interest rates... housingwire.com Los Angeles Times: Economists warn US may face deflation The White House prediction Friday that the deficit would hit a record $1.47trn this year poured new fuel on the fiery argument over whether the government should begin cutting back to avoid future inflation or instead keep stimulating the economy to help the still-sputtering recovery. But increasingly, economists and other analysts... housingwire.com Bloomberg: US may add $300bn of 'junk' small-firm loans President Barack Obama is on the verge of creating as much as $300bn in credit for small businesses as bankers raise doubt about whether there’s demand for new loans and how much will be repaid. The US Senate may vote this week on a bill to funnel $30bn of capital to... housingwire.com (In short... we ain't anywhere NEAR to having a problem with inflation yet.)