China
The Chinese economy appears to be "imploding". Electric power output, which normally moves up and down with GDP growth, has been declining for the past three months, while the Chinese OECD leading indicator, which GDP growth has followed closely over the past decade, has plummeted, suggesting growth is set to collapse.Korea
Korean GDP – which is reported on a seasonally adjusted quarter-on-quarter, but not annualised – contracted by 5.6%, the biggest drop since the Asian crisis in 1997-1998. In addition to plunging exports, the domestic economy is very weak, with private consumption falling 4.8%.Japan is in a similar situation. Over at Brad Setser's Follow the Money blog, there's this bit of strange news.
But a second factor is now also at play. Central bank demand for long-term bonds is falling. Right now that is largely because central banks are shifting (rather dramatically) into short-term bills.That means we're financing the debt with short-term Treasuries. We may be paying low interest rates, but we're not locking them in for a long term. Not only that, we're revving up to borrow from people who don't have much money to invest. As our supply of debt goes up and their demand goes down, we'll have to continually raise interest rates to attract their money.
No one has a plan to pay back any part of this debt.
Essentially, the United States is taking out the largest interest-only ARM in the history of the planet. How do you suppose that's going to work out? When we have to refinance all that short term debt as interest rates go higher, we are going to get killed.
4 comments:
Largest ARM ever? No worries, there's a bailout and nobody's going to get foreclosed on! Praise Obama!
The other, more subtle, thing is that we're now going to pay other countries to reduce their populations. Reversing the "Mexico City" policy means there will be even fewer people driving the economies that we depend on.
The other way to look at it is as a brilliant new front in the war on terror. By killing potential terrorists before they're born, we avoid that whole politically messy shooting war and intel gathering. A white President would have been accused of a racist genocide, but now we can do it without recrimination. Yes We Can!
Who controls short term interest rates?
Treasury notes are offered at a certain interest rate, and buyers either buy them or not. If no one buys them, then the interest rate has to be raised until they're attractive enough to be sold. Their purpose is to raise money for the government to operate. Once you have a government budget, that fixes the amount of money you need. Anything you want to spend above what you collect in taxes has to be borrowed. You don't really have a choice how much you want to borrow at that point, you just need to borrow it.
"You don't really have a choice how much you want to borrow at that point, you just need to borrow it."
The interesting thing is that if you own a printing press you can borrow it from yourself. It's called monetizing the debt, which comes with it's own set of issues, but your analysis is too simplified. You also don't look at what is basically the income of the country; the GDP to debt ratio is a pretty common measure of the degree to which countries are getting in over their heads.
Currently the US is at 23rd at 60%, that would go to about 80% after the stimulus. One of the interesting things is Japan at 170%; but the interest rate curve in Japan runs from virtually nothing all the way up to %2 for 30 year debt.
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