Tuesday, June 29, 2010

Why Are Treasury Rates Falling?

Harvard economist Jeffrey Miron tries to explain, given that the Federal deficit is about to explode (along with state and local deficits) :

Perhaps, as the article intimates, the resolution of this puzzle is akin to the old joke about two friends who see an angry  bear approaching their camp site. One starts to put on his running shoes. The other says, “Are you crazy, you can’t outrun a bear.” To which the first replies, “I know, but I only have to outrun you.”

As bad as policy is in the U.S., it is worse in most other countries. That may help the U.S. avoid the day of reckoning for a while.
 Obviously the key here is the "the U.S. [may]avoid the day of reckoning for a while". It's coming, our number just hasn't been called yet.

1 comment:

  1. Until free market risk taking returns, I can't see any near term good news in the market, let alone the whole country. People, in my view, are hunkering down for a long struggle because of what the see coming out of Washington. Money going into Treasuries, and driving down rates, is not being used to build factories, houses, or any other endeavor. Other than gold mining and ammunition production, would you want to start a business right now and put your money at high risk? Would you want to be regulated by the Obama Administration?

    The flipside to all this is that deficit financing will be setting all time records on a frequent basis, but because prospects elsewhere are so dim, rates will stay low, but eventually that bubble will burst and inflation will come upon us like wildfire.

    The system is slowly crumbling around us.