Friday, June 11, 2010

ECRI Allies With Barron's and Issues Its Latest, Downbeat, Report

The Economic Cycle Research Institute, which has been getting more mention these days, is now tighter with its data release and has left Reuters to join Rupert Murdoch's media empire by releasing its updates through Barron's. And today's report stinks, as summed up by the title "WLI Drops, But No Double-Dip Yet".

Recently, Brazil has had a failed gov't bond auction; Germany has had a failed auction or two (I forget the duration of the securities); and China announced its third failure of bills auctioned.

In May, the United States government spent approximately twice as much as its revenues. Boy, all those investors who are passing on higher-yielding securities of other countries must really espy hidden value in U. S. bills yielding approximately nothing.

All the predictions of big increases in U. S. Federal debt are predicated on good economic growth. Even a growth slowdown is going to further challenge Federal finances. And as consumer spending is more and more dependent on Federal money, it is getting harder and harder to see a happy next few years. When the Japanese bubble began to burst, interest rates collapsed. The opposite has been happening in Greece. Will the U. S. have a reverse Japanese, or Grecian moment? Tentative times, and investors in Federal debt must ask themselves why they want low yields locked in for many years in the future.

If the government would suddenly shrink, we might well see some economic dynamism following the withdrawal process. Breaking addictions is difficult, but the method that works best is cold turkey. Unfortunately what we are seeing is much more like the frog that got boiled so slowly it didn't notice till it was too late.

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