Thursday, March 26, 2009

Ruh-roh: Bond market going wobbly?

For weeks, I've been saying that the Obamanomics deficit-spending spree was putting too much pressure on the bond market, e.g., Feb. 15:
The fiscal fantasies of Hope are about to slam head-on into the economic realities of the bond market. Economic reality is an unmovable object, and liberals are about to discover that Hope is not an irresistible force.
That particular post was in response to a post by Commentary's Jennifer Rubin, who again Wednesday noted increasing signs of bond-market jitters:
The president can spin the press corps and prevaricate all he wants about fiscal responsibility. But math is math. Today we got a taste of what happens when we continually try to offload more and more debt onto the world financial community . . .
Rubin links a Washington Post item by Frank Ahrens about two auctions of government securities (in the U.K. and the U.S.) that signaled weaker investor appetite for debt:
The U.S. and most other nations will try to spend their way out of this recession by raising money by selling debt, like today's auction of Treasuries. This is a fine plan -- as long as there is demand for the debt.
If there isn't, then where will the recovery money come from? . . .
It also raises a larger, more ominous question: Is there enough money in the world to buy all the debt that governments will require to fund the recovery?
Still more seismic bond rumblings noted by Dakin Campbell and Susanne Walker of Bloomberg News. I tried to explain the bond-market problem Monday and then Wednesday linked a video by Peter Schiff, who has very similar views about the recovery-killing potential of a deficit-driven fiscal/monetary crisis. The Schiff video elicited some friction from Fear & Loathing in Georgetown, who suggested that hard-money guys like Schiff are "willing to risk a financial Armageddon in support of free-market principles."

To FLG, I would reply that supply and demand are not philosophical "principles," but ineluctable forces that operate remorselessly despite every effort to escape or evade them. In economics, a thing is only worth what you can sell it for, and operating as if this were not true will inevitably produce bad results.

This was why Ludwig von Mises, in his 1922 classic Socialism, was able to predict the failure of the Soviet experiment. Even where governments resort to totalitarian terror in their efforts to thwart the fundamental reality of economics -- as Zimbabwe today offers a chilling reminder -- reality ultimately wins, with horrific results for the innocent victims of statism. Obama, Geithner, Pelosi, Reid and the other architects of the current neo-Keynesian experiment are bringing down misery on a nation that will some day curse their memory.

Sooner or later -- but probably much sooner than you think -- the fecal matter will hit the rotary electrical cooling mechanism. The bond market will call the bluff of Obamanomics, and the current slow swirl of the financial toilet bowl will become a mighty flush. All the "stimulus" and "rescue" efforts to date will be revealed to have been not merely wasted trillions, but a cause, rather than a remedy, of the crisis to come.

Wednesday evening, I saw a Memeorandum thread on a CNN story with the headline, "Jindal defends those who want Obama to fail," and another thread: "Thompson: I don't want Obama's policies to succeed." In classic Vision of the Anointed fashion, this idiotic MSM meme wrongly attributes power to mere intention. It doesn't matter whether you want Obamanomics to succeed or fail, it will fail either way. In three words: It Won't Work.

Better yet, in two words: SELL NOW.

UPDATE: The Fed's inflationary buy-up of Treasury issues causes Patrick J. Buchanan to muse darkly about our Weimar future:
For inflation is theft. It make liars and cheats of governments. By eroding the value of a currency, inflation punishes savers and creditors and rewards debtors. And what nation is the biggest debtor of them all? The United States of America.
Insidiously, inflation consumes the value of cash, savings, municipal bonds, corporate bonds, Treasury bonds and T-bills. Friends who lent America money, who bought our debt in good faith, are robbed and made fools of, while speculators who bet against America by shorting the dollar in the currency markets are vastly rewarded.
PREVIOUSLY:P.S.: Be sure to check out MELTDOWN, Professor Thomas Wood's new bestseller about the financial crash and why Obamanomics won't work.

This brilliant fucking rant is not intended as, and should not be mistaken for, actual financial advice; otherwise every moron blogger who told you to "buy low, sell high" would need a license from the Security and Exchange Commission. No monetary inducements have been offered to or received by The Other McCain in exchange for this information, so hit the tip jar, you ungrateful bastards. The use of Gunnery Sgt. Hartman in an attempt to shame you into actually hitting the tip jar does not imply an endorsement of the free market by the late Stanley Kubrick. Heh. Do not remove this tag under penalty or law. "Cthulhu." Made in U.S.A. using organic shade-grown pixels harvested by undocumented Salvadoran child laborers.



  1. "The Fed's inflationary buy-up of Treasury issues causes Patrick J. Buchanan to muse darkly about our Weimar future..."

    This Weimar Republic schtick is interesting as over the past few weeks I've heard some politicians pick up on this talking point.
    It reminds me that it was during this Weimar period that Hitler gained prominence.
    Given all the chatter on the web, specifically from Conservative sites and the like, and especially from posts that warn about future secession and Civil War, it makes me wonder what direction the rhetorical battle over the future of America is going in.
    It is safe to conclude then that if this indeed is the path we are on,this supposed Weimar Republic, it is reasonable to conclude that the next Hitler would come from the Conservative side of the fence.

    This isn't a great leap in logic, since it was the Weimar environment that watered the seeds of resentment politics. This fits perfectly with the tone of Conservative media since BO took office.
    Congrats Cons!
    Instead of mounting a principled stance on the pressing issues, you pass your time misleading your constituency with falsehoods and devious spin, the very tools of the Nazi party and of Hitler himself.
    Of course, the premise that we are headed towards a Weimar-like situation is ludicrous.This is America goddamit! Americans won't stand for that, no matter who is president.
    But since you guys insist on pushing this fantasy of yours, I thought it might be fun to follow it to its frightening conclusion.
    Deal with it....

  2. It's not that neo-keynsian economics are wrong. In fact there is a lot of common ground between them and the neo classicists.

    Stimulus works, but it's a short term fix only. We've overused it for far too long. Each time we do it, it loses its effectiveness. If this current round of stimulus works at all, it will probably be the last time it works. At least until we do something to address our long term liabilities created by social entitlements.