The big deal in the markets right now is the ripple effect resulting from Quantitative Easing II, or the Fed’s decision to purchase 600 billion or so in long-term treasury bonds. I’m gonna try and explain this in as concise a manner as I can, but it’s complicated as all heck, so bear with me.
The Fed pumps out 600 billion and buys treasuries. Two things are supposed to happen:
1) Dollar devalues because there’s more dollars out there (basic supply and demand)
2) Treasury rates go down (abruptly higher demand means that bond rates can be lower)
The idea here is that super low bond rates will force investors to go looking to other asset classes (like stocks) and will spurn growth in the economy and job market. So what happened?
1) Dollar immediately rallied
2) Rates went up
Suh-wing and a miss, guys.
Alright. From a hypothetical standpoint, it should have worked. Of course, hypothetically speaking, communism works too. However, the massive unraveling of the European debt crisis seems to be trumping any monetary action our country takes. The joys of a globalized economy.
And, we are faced with the moral dilemma of driving down rates that are already at historic lows. The only tangible change will be offering credit to what most would consider to be non-creditworthy borrowers, which is how this whole mess started in the first place.
But, this whole FUBAR situation is a reminder that these rates won’t be here forever. Hint hint, pro-spective client.
Sarah Palin has recently come forward saying that she could beat Obama in 2012 if she ran for president. A message to Sarah: if you would like MY vote, the only way you’re getting it is if you find Osama Bin Laden, catch him, and field dress him right then and there using only a Buck knife, the American spirit and your teeth while your reality show film crew immortalizes it all. That would be cool. I can vote for that.
General Motors had a well-received IPO recently. This stands as a strong symbol for how far the American economy has come since the lows we experienced in 2008. It ain’t perfect yet, but it cer-tainly is improving.
Airport security personnel get to now enjoy a cheap thrill at the workplace as pat-downs have become mandatory before boarding a plane. This has raised an interesting conundrum with US residents: would you rather be felt up by a stranger or blown up mid-air?
I say “grab away, security guards.” Usually you have to pay extra for that kind of action.
And global tension has erupted from North Korea’s decision to shell a South Korean island for 90 minutes, resulting in multiple injuries and 4 casualties. Since then, they have mobilized a pile of surface-to-surface missiles and some surface-to-airs. Mayhaps someone who remembers how WWII ended should remind Kim Jong Il what happens when you try to screw with allies of the US.
That being said, North Korea is BFF with China, which complicates things slightly.
Since mid-term elections, budget cuts have been the talk of Washington. From ‘adult conversations’ that are long overdue concerning Medicare and Social Security to a recent two-year pay freeze for ci-vilian government workers, all our politicians are hell-bent on tightening the belt. Frankly, I had to let my belt out by a notch after my gluttonous Thanksgiving gorge-myself-fest. Iiiiiiiironic.
I never clicked through to your blog before, but not bad at all.
ReplyDeleteI only have one suggestion - stick to what you know. Your economic analysis at the top it pretty spot on (you don't mention that we're in a period of deflation and fiscal policy is gridlocked so QE is pretty much the only option available for economic stimulus right now, but bygones).
The airport security story was nothing but Drudge promoted nonsense, ignore it.
I've recently come to the conclusion that excepting a few economic news bits (Ireland right now for example), foreign policy should be off limits to... just about everyone. Your "China and DPRK are BFFs" comment is exhibit ZZZ in my case. Domestic economics and public policy are big enough. It's like saying I want to play in the MLB and NFL. They're both sports, but there's a reason 3 guys total have been any good at both.
And I think China / DPRK would be more interested in the outcome of the KOREAN war. The Germans were bombing the UK for years before the U.S. intervened, so "messing with U.S. allies means we MIGHT do something about it years later... again, bygones - why I don't talk foreign policy.
Oh, and I should add that SS is solvent with current benefits paid in full through 2037. There is no crisis and NO rush to do anything about it. To paraphrase one of my favorite bloggers - you're not talking about debt / austerity unless you're talking health care costs in the aggregate, EVERYTHING else is objectively NOT serious. The government salary thing? 0.0005% of the discretionary budget last I checked.