With over $ 3 Trillion in treasury securities to fund in the market place this year, there are early signs that this is not going to work. Even with the Fed buying treasuries, this plan will not work. The Bernanke plan of buying treasuries simply makes matters worse because of the widely understood inflationary impact of the Bernanke actions. Ben seems to be gunning for the title of worst Fed Chairman in history. I personally think he's a shoo-in. But, what are the Obama folks thinking?
Ten year treasury yields are reaching for higher levels daily and thirty year bond rates are soaring as well. If and when commercial lending rebounds, it is likely to be a rebound with dramatically higher rates. So much for the rosy forecasts of the Obama administration. The deficits and the national debt are going to be much, much higher than current forecasts. It isn't clear that the US can get through 2009 without a major crisis in the treasury market. The planned deficit sales and the Bernanke monetization are frightening global holders of treasuries.
Brazil and Russia made a joint announcement yesterday that they intend to unload their treasury securities and buy IMF securities. China and India have indicated similar plans. No one but Geithner and Summers have any confidence in the US treasuries plans for the future and no one but Ben Bernanke thinks that massive purchases of treasuries by the Fed will do anything but cause further mischief with inflationary expectations. All of these folks (Geithner, Summers, Bernanke) deserve a dunce cap for their economic policies. Unfortunately, the average American citizen will get the bill....stagnation, unemployment, and inflation.
Not since Jimmy Carter has there been an administration so offbeat in economic policy. It isn't easy to create rising unemployment and inflation, but the Obama team has got the formula right. Frighten the business community with massive new mandates, impose dramatically higher tax rates (yes "cap and trade" is a tax no matter what the Obama folks call it) and have the Federal Reserve increase the money supply with growth rates unheard of in modern, developed economies. This combination will do the trick and it looks like the world is watching, getting the message, and heading for the exits (from the US Treasury market).
Well, Larry, what next? When treasury rates hit eight percent, can you find a way to blame the previous adminstration for that too? It's time to take a little credit here. Without the economy bashing of the Obama campaign (go back and read the speeches) and the frontal assault on the business community and financial sector in the early weeks of the Obama administration, this would have been a run-of-the mill recession with unemployment topping out at about 8 percent (the Obama forecast, incidentally). The economic recovery would normally be well under way by now, without any heroics from government. But business folks are frightened to death of the Obama team and are not hiring and will not be hiring. Global investors are now seeing the hand writing on the wall of the profligate plans of the Obama team and are deserting the US treasury market.
Meanwhile, the parties continue at the White House, with an occasional jaunt to pick up a Broadway show in the Big Apple. Life is fun. From a Harvard coffee shop to the White House in such a short time. Probably should have taken that Economics course, but it was offered at 9 AM and 9 AM is not cool. Why is the media suddenly asking about treasury rates? Why are my poll numbers falling over my handling of the economy? Oh, well. tonight, Barbara Streisand is coming over. She can sing me a song and make it all better. Did Larry call? Tell him I'll see him tomorrow.