The Invisible Bond Vigilantes Continue Their Invisible Attack

[one...two...tree 2,762]

The Invisible Bond Vigilantes Continue Their Invisible Attack

: Ten-year bond rate now down to 3.05 percent. Clearly, we must slash spending immediately to satisfy the market’s demands...

This is a chart of a market that’s expecting weak growth and little demand, not a market worried about the deficit.

[Usui Takumi 1,562]

Surprised no one has commented on this. This is a strong gauge deflation is coming to an area near you.

[one...two...tree 2,762]

Surprised no one has commented on this. This is a strong gauge deflation is coming to an area near you.

Because it doesn't fit in with the viewpoint that deficit reduction should take priority over preventing another Depression with more federal spending.

[evli1966 88]

Because it doesn't fit in with the viewpoint that deficit reduction should take priority over preventing another Depression with more federal spending.

It should take precedence more federal spending will only delay the enevitable and increase the size of the hole we will all have to climb out of.

Most people know what to do when they see it coming.

Why the hell wouldn't the Government do the right thing as well?

Because Obama wants certain consessions made before he freezes the spending.

[Usui Takumi 1,562]

Honest question. Has spending cuts ever pulled a nation out of recession?

[evli1966 88]

Honest question. Has spending cuts ever pulled a nation out of recession?

Well there has been no true spending cuts in our economic history.

We have only cut back on future spending it is my guess without researching to allow the economy to catch up and pay some of the interest on the debt down; this shows a dcline of our national debbt.

There is no way we can absolutely stop spending as a country but there are programs paid exteriorly to other countries or the common wealth states which take and take.

While there is a war being fought were the US citizens are baring the majority of the costs this could be cut back to match what other countries are putting into it

There are trade deficits between USA and other countries which should be brought to date (understand this could mean less products sold overseas and less imported product sold here.)

There are many ways to cut spending now and for in the future to allow the debt to decline or be paid off; but bigger government, strangle hold regulations on business, higher taxes for everyone, larger welfare system, unpaid public health care system etc. is not the right direction either.

With this said a federal government could balance it's size while balancing the transparency laws with reasonale regulations on businesses to allow fair business practices, income tax affects most people increasing it is not the 100% answer the tax system needs to be reformed. we need a welfare systme for LEGAL CITIZENS who legitmately need it. public health care system which has been forced down our throughts should not be a blanket but could have been an small expansion of the already in place welfare system again for people who could not obtain it due to no work or that was already part of the general welfare system.

With a debt nearly zero or in a pay off range we as a country could truly becaome a country following a pay as you go policy with a plan to create a larger natinal emergency reserve.

Where could we go from here with a nearly 0 debt?

[Mr. Big Dog 10,747]

Honest question. Has spending cuts ever pulled a nation out of recession?

Ran across this article yesterday. Looks as if Ireland is not having the best of experiences following their austerity measures adopted a couple of years ago. While most industrialized countries are in the early stages of a recovery, Ireland remains in recession. This may work out well for them in the long run but it appears that the markets aren't rewarding Ireland for it's efforts to reduce spending.

Ireland struggles with high cost of austerity

by Liz Alderman

DUBLIN — As Europe’s major economies focus on belt-tightening, they are following the path of Ireland. But the once thriving nation is struggling, with no sign of a rapid turnaround in sight.

Nearly two years ago, an economic collapse forced Ireland to cut public spending and raise taxes, the type of austerity measures that financial markets are now pressing on most advanced industrial nations.

“When our public finance situation blew wide open, the dominant consideration was ensuring that there was international investor confidence in Ireland so we could continue to borrow,” said Alan Barrett, chief economist at the Economic and Social Research Institute of Ireland. “A lot of the argument was, ‘Let’s get this over with quickly.’ ”

Rather than being rewarded for its actions, though, Ireland is being penalized. Its downturn has certainly been sharper than if the government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1 percent last year and remains in recession.

Joblessness in this country of 4.5 million is above 13 percent, and the ranks of the long-term unemployed — those out of work for a year or more — have more than doubled, to 5.3 percent.

Now, the Irish are being warned of more pain to come.

“The facts are that there is no easy way to cut deficits,” Prime Minister Brian Cowen said in an interview. “Those who claim there’s an easier way or a soft option — that’s not the real world.”

Despite its strenuous efforts, Ireland has been thrust into the same ignominious category as Portugal, Italy, Greece and Spain. It now pays a hefty three percentage points more than Germany on its benchmark bonds, in part because investors fear that the austerity program, by retarding growth and so far failing to reduce borrowing, will make it harder for Dublin to pay its bills rather than easier.

Other European nations, including Britain and Germany, are following Ireland’s lead, arguing that the only way to restore growth is to convince investors and their own people that government borrowing will shrink.

'Tough bind'

The Group of 20 leaders set that in writing this weekend, vowing to make deficit reduction the top priority despite warnings from President Obama that too much austerity could choke a global recovery and warnings from a few economists about the possibility of a much sharper 1930s style downturn.

“Europe is in a tough bind,” said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund and now a Harvard professor. “If you want to escape default, the Irish path is the only way to go. But the Ireland experience points to the profound challenges that the current strategy implies.”

Politicians here have raised taxes and cut salaries for nurses, professors and other public workers by up to 20 percent. About 30 billion euros ($37 billion) is being poured into zombie banks like Anglo Irish, which was nationalized after lavishing loans on developers.

The budget went from surpluses in 2006 and 2007 to a staggering deficit of 14.3 percent of gross domestic product last year — worse than Greece. It continues to deteriorate. Drained of cash after an American-style housing boom went bust, Ireland has had to borrow billions; its once ultralow debt could rise to 77 percent of G.D.P. this year.

“Everybody’s feeling quite sick at what happened because things were going so well for Ireland,” said Patrick Honohan, the Irish central bank governor. “But we don’t have the flexibility to do a spending stimulus now. There’s no one who is even arguing for it.”

Knowledge-based multinationals

Mr. Honohan predicts growth could revive to a rate of about 3 percent by 2012. But that may be optimistic: Ireland, as one of the 16 nations in Europe that has adopted the euro as its common currency, is trying to shrink the deficit to 3 percent of G.D.P. by 2014, a commitment that could weaken its hopes for recovery.

These troubles sting many Irish, given the head start Ireland has on most members of the euro club. Its labor market is one of Europe’s most open and dynamic. After its last major recession in the 1980s, it lured knowledge-based multinationals like Intel and Microsoft — and now Facebook and Linked-In — with a 12.5 percent tax rate, giving Ireland one of the most export-dependent economies in the world.

Now, the government is pinning nearly all its hopes on an export revival to lift the economy. Falling wage and energy costs, and a weaker euro, have improved competitiveness.

Turning statistics into jobs, however, will be a herculean task. “Exports alone don’t drive a significant number of jobs,” said Paul Duffy, a vice president at Pfizer in Ireland.

Wage cuts were easier to impose here because people remembered that leaders moved too slowly to overcome Ireland’s last recession. This time, Mr. Cowen struck accords swiftly with labor unions, which agreed that protests like those in Greece would only delay a recovery.

Brain drain?

But pay cuts have spooked consumers into saving, weighing on the prospects for job creation and economic recovery. And after a decade-long boom that encouraged many from the previous years of diaspora to return, the country is facing a new threat: business leaders say thousands of skilled young Irish are now moving out, raising fears of a brain drain.

David Stronge returned to Dublin in 2006 from an architecture job in Britain. “I wanted to come back here and get a piece of this action,” he said. “And I did for about a year. But then it started to tank.”

He moved to reinvent himself, returning to school with thousands of other Irish, in hopes that a higher degree would lead to better prospects. Mr. Stronge plans to seek alternative energy jobs in Britain once he gets his master’s degree in August.

“Ireland isn’t going to spend on infrastructure probably for another 10 to 15 years,” he said. “So you have to go to where the opportunities are.”

At the D Café, a sandwich shop facing a stretch of empty buildings in Dublin’s Docklands enclave, even that dream seems impossible. “If you’re self-employed and lose your job, you’re entitled to nothing, not even the dole,” said Debbie, the owner, who would only give her first name.

She transformed her convenience store into a deli when Liam Carroll, a property baron, threw up the nearby developments. But the tenants never came, and her business evaporated.

“It’s so destroying,” she said, gazing out the window. “We all live day by day, and we don’t know when it will ever pick up.”

Empty buildings

Signs of the decline encrust Dublin’s streets. Boisterous crowds still mash onto the cobbles of Temple Bar. Yet farther out, “To Let” posters obscure the hollowed shells of once-vibrant cafes and clothing shops.

Fifteen minutes north of the city center, hulks of empty buildings form stark symbols of why Ireland must now hunker down. At Elm Park, a soaring industrial and residential complex, 700 employees of the German insurer Allianz are the lone occupants of a space designed for thousands.

In the impoverished Ballymun neighborhood, developers began razing slums to make way for new low-income housing. Halfway through the project, the financing dried up, leaving some residents to languish in graffiti-covered concrete skeletons. “Welcome to Hell,” read one of the tamest messages.

Now the government is debating whether to demolish developments it inherited from the banks it nationalized, and restore them to green pasture.

A bitter sense of regret punctuates chatter at any Irish bar, where the topic often turns to vilified bankers and politicians, or the latest jobless figures.

[mawilson 2,133]

This is a chart of a market that’s expecting weak growth and little demand, not a market worried about the deficit.

I thought the market was greedy and reckless and got us into this mess.

Now we can trust it when it suits your agenda? Good to know!

[mawilson 2,133]

####### is an "invisible bond vigilante" anyway?

[Usui Takumi 1,562]

####### is an "invisible bond vigilante" anyway?

Some Chinese or Japanese dude I suspect.

[mendeleev 68]

An invisible bond vigilante is a figment of the immagination -- a bogeyman that doesn't exist.

There aren't any bond vigilante's taking aim at the US treasury.

The bond market is not demanding deficit reduction in this country.

[mendeleev 68]

Bond vigilantes can be real, though.

George Soros was a bond vigilante who brought about a devaluation of the pound back in the '70s.

Bond vigilantes brought Greece to heel earlier this year and are currently irrationally punishing Ireland and Spain. Rational bond vigilantes would punish countries that cannot control their currency that have weak economies, growing deficits relative to GDP. That does not describe Spain, whose debt/GDP ratio has been going down these last several years. (It might describe Germany, whose sovereign bond rates are among the lowest in the Eurozone.)

An invisible bond vigilante is one who is absent in the market. Were there bond vigilantes acting against the US, interests rates on government debt would be increasing. They dropped under 3% this week. The rush to quality always pushes down US bond rates and that will continue as long as there is no other alternative global reserve currency. And the Euro's claim to be a viable reserve currency ... lost credibility this year.

It will be prudent for the US to raise taxes (especially on the wealthy rather than the middle and lower classes since taxes on the wealthiest is less recessionary) and cut spending soon -- but not for a year or two. To cut spending and raise taxes in a recession will only make matters worse -- and the bond markets are not demanding that sort of insanity.

[^_^ 5,021]

To cut spending and raise taxes in a recession will only make matters worse -- and the bond markets are not demanding that sort of insanity.

aye, but the tea partiers are.

[mendeleev 68]

Honest question. Has spending cuts ever pulled a nation out of recession?

Its a good question. There are claims that spending cuts have pulled countries out of recession. But the cases cited ignore more important countervailing factors in each case.

"Here’s a list of fiscal turnarounds, which are supposed to serve as role models. What can we say about them?

Canada 1994-1998: Fiscal contraction took place as a strong recovery was already underway, as exports were booming, and as the Bank of Canada was cutting interest rates. As Stephen Gordon explains, all of this means that the experience offers few lessons for policy when the whole world is depressed and interest rates are already as low as they can go.

Denmark 1982-86: Yes, private spending rose — mainly thanks to a 10-percentage-point drop in long-term interest rates, hard to manage when rates in major economies are currently 2-3 percent.

Finland 1992-2000: Yes, you can have sharp fiscal contraction with an expanding economy if you also see a swing toward current account surplus of more than 12 percent of GDP. So if everyone in the world can move into massive trade surplus, we’ll all be fine.

Ireland, 1987-89: Been there, done that. Let’s all devalue! Also, an interest rate story something like Denmark’s.

Sweden, 1992-2000: Again, a large swing toward trade surplus.

So every one of these stories says that you can have fiscal contraction without depressing the economy IF the depressing effects are offset by huge moves into trade surplus and/or sharp declines in interest rates. Since the world as a whole can’t move into surplus, and since major economies already have very low interest rates, none of this is relevant to our current situation.

Yet these cases are being cited as reasons not to worry as austerity becomes the rule."

Source: http://krugman.blogs.nytimes.com/2010/06/18/fiscal-fantasies-2/?scp=6&sq=Krugman&st=cse

[Mr. Big Dog 10,747]

To cut spending and raise taxes in a recession will only make matters worse -- and the bond markets are not demanding that sort of insanity.

aye, but the tea partiers are.

Sweet. Raise their taxes and quit spending on them. That way they'd get what they're demanding and would hopefully shut up.