All Posts Tagged With: "deficit"

The Nobel Prize committee has never withdrawn a prize. It might want to consider it. In Tuesday’s New York Times, prizewinner in economics, Paul Krugman reveals either that he knows nothing about economics…or that there is nothing worth knowing in it. We’re beginning to think it’s the latter.

You can recover from a fall. You can recover from a broken heart. You can recover from a head cold. You cannot recover from death. You can only become a zombie. The US economy merely became more zombified, after the crisis of ’07-’09. Houses are underwater. People are living on food stamps and unemployment compensation…

Hmm. If everyone, including the RBA, is so sure that a hyperinflationary depression is not likely, then what is legendary trader Victor Sperandeo doing saying the exact opposite? If you don’t have time to watch the four minute segment on CNBC, his point is simple: long-term structural deficits in the US make it nearly inevitable that bond investors will cease funding US deficits and yields will rise, forcing debt monetisation by the Fed.

We have found out a few interesting things this month. One, as long as sovereign debt woes in Europe persist, U.S. Treasury bond yields can go lower. Investors seeking a haven from Europe don’t seem to have any problem buying U.S. bonds at near record-low yields. This is bizarre. Of course at a superficial level, if you were concerned that the European bank stress tests were a sham and that interest rates in Europe could go much higher unexpectedly, you might view U.S.

“You can take your loans and shove them,” the Hungarian economic minister, György Matolcsy, did not say. But that’s what he was thinking. Watch out. The Hungarians are trendsetters. They ran a budget deficit of 9% of GDP back in 2006. They got a $20 billion bailout in 2008 and have been living with austerity measures ever since…

Daily Reckoning editors have written endlessly about how such stimulus will merely “pull forward demand”, causing a slump once the stimulus is withdrawn. They have been proven right in textbook fashion. But Schiff points out a further crucial consequence of this economic mismanagement. In addition to pulling forward demand, there is the interest on the debt used to pull this demand forward.

To make matters even more unsettling, the world’s governments have pledged to reduce their countercyclical spending. They won’t get an argument from us on that score. They are doing the right thing. But if they follow through, it will result in the private sector and the public sector de-leveraging at the same time. This is highly deflationary.