financiers trying to scare & stampede you into cutting your own throat

[Hannah Bell]

Markets are Fearful That U.S. Debt Is Unsustainable -- That is Why the Interest Rates on U.S. Bonds Fell


Sunday, 09 May 2010 16:21

The folks who couldn't see an $8 trillion housing bubble are spouting off like crazy about what the Greek debt crisis means. The NYT told us that: "While the immediate causes for worry are Greece’s ballooning budget deficit and the risk that other fragile countries like Spain and Portugal might default, the turmoil also exposed deeper fears that government borrowing in bigger nations like Britain, Germany and even the United States is unsustainable."

Fears that government borrowing in the United States is unsustainable should manifest themselves in higher interest rates on long-term government bonds. Unfortunately for this story, the interest rate on long-term government bonds fell last week. So, the NYT wants us to believe that investors are more fearful about the status of U.S. debt, but they were willing to hold it at lower interest rates?

Umm, no, this is a "night is day" line. The NYT is telling us something that it 180 degrees at odds with what we see in the world. There are large numbers of wealthy and politically powerful people who want to scare the public about the U.S. debt in order to advance their agenda of cutting Social Security and Medicare, but the events of last week point in the opposite direction. Investors still have great confidence in the ability of the U.S. government to pay its bills.

The theme of deficit hawks was further reinforced in the next paragraph which told readers...'The U.S. is a long way from being where Greece is, but the developed world has been living beyond its means and is now being called to account.'"

The savings for the developed world as a whole is determined by its trade deficit or surplus with the developing world. The latter is determined primarily by currency values of the level of output in various countries. As a result of conscious policy by the United States and the IMF, the dollar rose sharply in value against the currencies of most developing countries in the late 90s (following the East Asian financial crisis). This laid the basis for the huge imbalances associated with the stock bubble and the housing bubble...The complaint about inadequate savings belongs at the door of the U.S. Treasury and IMF. It was the explicit and intended result of their policies. The moral haranguing about people not saving enough is utter nonsense that belongs in gossip pages, not in a serious newspaper.

- Dean Baker

http://www.cepr.net/index.php/beat-the-press/

[PM Martin]

1. kick for later

[Warpy]

2. Anybody who shorts all those great experts who didn't see the crash

coming is going to do well. After all, there were a lot of us mere mortals who make far less than their mid six figure salaries as great experts who saw the whole thing coming. You can read the archives on the Economy forum to see some of us.

Likewise, anybody who lets their fear fool them into thinking those same great experts are handing down the wisdom of the ages is going to lose his shirt.

The same goes for the government.

Deficit hawks also plagued FDR and forced a balanced budget on him in 1936. That prematurely ended many of the programs that were pulling us out of the Great Depression and caused the Great Recession of 1937, something that wasn't ended until we geared up for a world war. Had his programs been allowed to continue, we'd have been in much better shape.

I just hope the administration is wise enough to know these great experts are talking through their holes, the one their martinis don't go into.

Funny how they turn into deficit hawks only when they've been thrown out of power.

[Hannah Bell]

4. yep. they're all big spenders *in* power, running up the very deficits they decry once they exit.

-- funny how that works.

republicans rack up the debt, democrats ramp down social programs to make the civilians pay back the debt -- to finance capital.

[WCGreen]

3. It was a news article talking about possible reasons and reactions..

Not an opinion piece.

I just read that article today and thought it spelled out the whole mess pretty clearly.