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Monday, January 09, 2006

More Mind-Numbing But Important Economic Stuff

Every recession in modern U.S. history has been preceded by a phenomenon called "bond yield inversion", in which the interest rates on short-term bonds becomes higher than that on long-term bonds. And, conversely, 94% of all bond yield inversions have been followed by either a severe economic slowdown or a recession. Bond yield inversion is considered the best early predictor of future economic troubles.

Guess what? In December, the U.S. entered a bond yield inversion.

Could be just a blip, caused by the Fed's recent increases in interest rates (which should stop soon). Could be that China's decision to cut back on borrowing U.S. government bonds will cause an increase in long-term bond rates, correcting the inversion. Could be, as Alan Greenspan says, that history won't repeat itself because America is special.

Could be.

But I doubt that America is any specialer today than it was before the last eight recessions, and I keep wondering why, near the end of his life, Greenspan keeps going back on everything his pre-2000 career stood for.

And I also wonder why, if we're not approaching a global recession or worse, England's bond yields have also inverted, and Japan's and Germany's are flattening.

So now we have China backing away from its continued financing of U.S. government deficit spending; an impending demographic surge putting new strains on Social Security and Medicare; corporations bailing out on their pension obligations left and right; GM closing plants here and opening them in India; an economy that's "booming" only on Wall Street but accompanied by steadily declining real-dollar incomes for working Americans; the Fed creating the right conditions for big players to game the stock market without small investors knowing; and the bond yields of the major industrial nations either inverting or flattening.

Want to know the difference between Progressivism and classic Political Liberalism? The economic climate. In good economic times, people can afford to be generous. Those are the best conditions for Progressivism, or Neoprogressivism. In bad economic times, people can't afford to be generous; rather, they're in desperate need of it themselves. Those are the best conditions for government paternalism. And, in some cases, the same conditions can lead to fascism, as in Weimar Germany. Now, I'll choose liberal paternalism over fascism during a Depression: FDR instead of Hitler. But neither a welfare state nor a fascist state is on my wish list for America.

Anyway, buckle your seat belts, folks, 'cause we may be in for a bumpy ride. I'm thinking 1929, not 1980. Hope I'm wrong.

Thanks to Holden Caulfield for the bond yield tip.

SUPPLEMENT: Plus, Americans may have had a negative net savings rate in 2005 -- for the first time since the Great Depression. Thanks to rorschach.

Boy, I'm cheery today.


Blogger Holden said...

Goddammit, where's My Bush Boom?

1/09/2006 7:44 AM  
Blogger OsakaJack said...

You know, for a Republican, he sure does spend a lot. Thanks, as always, to GT of Doonesbury, for this inspiration.

1/09/2006 2:40 PM  
Anonymous Anonymous said...

OJ: Absolutely. Trudeau nailed it with his BD diatribe last Sunday!

1/10/2006 11:50 PM  

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