Listen to What Bond Markets Are Telling Us

[Celebration]

http://www.cnbc.com/id/44418888

What is to be done? To find an answer, listen to the markets. They are saying: borrow and spend, please. Yet those who profess faith in the magic of the markets are most determined to ignore the cry. The fiscal skies are falling, they insist.

HSBC forecasts that the economies of high-income countries will now grow by 1.3 percent this year and 1.6 percent in 2012. Bond markets are at least as pessimistic: US 10-year Treasuries yielded 1.98 percent on Monday, their lowest for 60 years; German Bunds yielded 1.85 percent; even the UK could borrow at 2.5 percent. These yields are falling fast towards Japanese levels. Incredibly yields on index-linked bonds were close to zero in the US, 0.12 percent in Germany and 0.27 percent in the UK.

Are the markets mad? Yes, insist the wise folk: the biggest risk is not slump, as markets fear, but default. Yet if markets get the prices of such governments’ bonds so wrong, why should one ever take them seriously?

..............snip.....................

It is becoming ever clearer that the developed world is making Japan’s mistake of premature retrenchment during a balance-sheet depression, but on a more dangerous – far more global – scale. Conventional wisdom is that fiscal retrenchment will lead to resurgent investment and growth. An alternative wisdom is that suffering is good. The former is foolish. The latter is immoral.

Reconsidering fiscal policy is not all that is needed. Monetary policy still has an important role. So, too, do supply-side reforms, particularly changes in taxation that promote investment. So, not least, does global rebalancing. Yet now, in a world of excess saving, the last thing we need is for creditworthy governments to slash their borrowings. Markets are loudly saying exactly this. So listen.

[villager]

1. They won't listen. Until people in the streets force them to.

n/t

[Yavin4]

2. (C) The U.S. Economy Cannot Recover Until Housing Recovers

(B)Housing cannot recover until jobs recover bringing with it higher wages.

(A) Jobs cannot recover unless the Federal government takes strong fiscal, regulatory, and tax(read tariffs and higher taxes on the wealthy) action.

(A) --> (B) --> (C)


If these things do not happen, then we sit in a stew of a dead economy for years and years to come.

[dixiegrrrrl]

3. which is preferable to the other scenario: hyper inflation.

but a third option, of forcing the bankers and governments to be honest, does not seem to be up for political discourse.