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Another Fed Fiasco: U.S. Bond Yields Fall to Record Lows
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The US economy has never been as mismanaged as it is today. Don’t take my word for it, just look at the bond market.

On Thursday, the yield on 30-year US Treasuries dropped to a record-low 2.18 percent while the benchmark 10-year Treasury slid to 1.37 percent. (less than 1 basis point above its all-time low!)

In plain English, what this means is that the US economy stinks. Unfortunately, “stinks” does not adequately express how badly the economy is actually doing, so let’s break it down a little bit.

Credit is the life’s blood of the modern economy. When credit demand is weak, the economy struggles and growth falters. Falling yields on long-term bonds (like the 30-year Treasuries) indicates that the demand for credit is weak, therefore the price of money falls. It’s just supply and demand.

So let’s cut to the chase: At present, investors are willing to lend the government their money for 30 years expecting a miserable 2 percent return on their investment. What sort of fool would do that? There have to be better outlets for profitable investment than that, right?

Wrong. There are no other “safe” profitable outlets, because the economy is still in the doldrums 8 years after the Crash of ’08. And the reason the economy is in the doldrums is because that is where policymakers want the economy to be. Because as long as the economy is in the doldrums the Central Bank can continue to keep interest rates locked at zero so its crooked crony buddies on Wall Street can make beaucoup profits off stock buybacks and dividends.

Get the picture? The Fed is not “experimenting” with a policy which, it believes, ‘may or may not’ put the economy back on a strong growth-path sometime in the future. No. That’s not it at all. It is continuing to implement a policy that works “just fine” for the people who count, that is, the chiseling bankers and corporatists who own the government and who dictate policy behind the curtain of our political charade.

Now, typically, you might think that stocks would fall when bond prices rise or vice-versa, but that’s not how things work anymore. Now when the bond market rallies, stocks rally too on the prospect of more “extraordinary monetary accommodation”, which is a fancy term for more free money. This is precisely what’s happening at present. Stocks have shaken off their massive 2-day losses following the Brexit earthquake, and climbed to near-record highs again due to promises from the European Central Bank (ECB) and the Bank of Japan (BOJ) to boost their stimulus.

More free money means higher stock prices and a comforting return to the new centrally-planned market where stocks stay perennially bubbly while the economy staggers along at an anemic 2 percent GDP.

This is why investors are willing to lend the government their money for next-to-nothing for 30 years. It’s because they anticipate that this low rate, low inflation, low growth environment will continue for the foreseeable future. And they’re probably right, too. The Fed and its cronies have an absolute lock on power and investors in the “world’s biggest and most liquid market” (USTs are a $13 trillion market) don’t see that changing anytime soon.

It would be impossible to overstate how pessimistic this view really is. Basically, bond yields are telling us all that there is no hope for the future, that what you see is what you get. There won’t be an economic recovery because an economic recovery is not in the interests of the people who are getting rich off the current policy. So just suck it up and get used to it.

So, how low are long-term bond yields?

They’re lower than they were after Lehman Brothers defaulted. They’re lower than they were after the dotcom crash. They’re even lower than they were during the Great Depression! How do you like them apples?

The 30-year is lower than anytime on record and its bound to go lower still because the people who are conducting the policy are determined to suck every drop of blood out of the economy before moving on to their next host. That’s just how parasites work.

Long-term yields are lower because the economy is worse not better. Can you see that?

The bond market is saying in simple, straightforward language that the Fed is doing a shitty job.

After 8 years, I don’t know how anyone could disagree with that.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at [email protected].

(Republished from Counterpunch by permission of author or representative)
• Category: Economics • Tags: Federal Reserve 
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  1. “Long-term yields are lower because the economy is worse not better.

    Bzzzzzzz! Wrong way around. The economy is in its current sh!tty state because rates have been held artificially too low for too long, driving all sorts of mal-investment and capital destruction by those who control the levers of the capital, generally the parasitic FIRE sector and the 0.01%.

    BTW, rates haven’t fallen to new lows … they have been pushed there. Its how the majority of society is being plundered of its life savings and a good deal of the value of their human capital.

  2. Credit is the life’s blood of the modern economy.


    For 36 years people have treated debt (esp. government debt) as wealth. This meant that instead of taxing citizens in order to fund political spending, politicians–enabled by central bankers–issued debt, spent like drunken sailors on leave in a whorehouse, and the holders of that debt were richer…especially as rates fell and capital gains on long term debt multiplied.

    The closest analogy would be if taxpayers felt richer, the more taxes they paid. Difficult to imagine, no? No wonder government spending went crazy.

    Mr. Whitney makes the modern blunder of equating credit with capital. IT IS NOT. Prior production, the foundation of wealth, is now irrelevant in determining access to credit. This has rendered the accumulation and nurture of capital valueless.

    Can Mr. Whitney explain how a modern economy can exist on credit alone, ignoring the value of plant, equipment, innovation in the form of defendable and relevant patents and trade secrets, etc.? Excess money (mostly credit) doesn’t automatically generate additional capital. It simply alters the time-structure of production and consumption in irrational ways.

    After decades of teaching people that capital is meaningless, how much actual capital remains? Do we have any idea? No. What we have is an economy that constantly pulls future demand into the present while heaping payment carrying costs on it.

    Since what will be produced in the future cannot be consumed in the present, all this does is divert ever more consumption into NOW. What happens when a farm has sold all of its current product but customers storm the fields and barns to consume more?

    The seed corn and breeding stock—the very lifeblood of future production….CAPITAL—-is consumed.

    Never in history has so much consumption been diverted into the present. The future will be poorer for it.

    I hope those who promulgated and rationalized all this idiocy are among the sufferers of the hard times to come.

    • Replies: @pink_point
  3. @dc.sunsets

    I hope those who promulgated and rationalized all this idiocy are among the sufferers of the hard times to come.

    No they won’t be.

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