It was inevitable. You can't spray the world with an endless supply of something and not expect an adverse price effect. The U.S. has been living on borrowed time, but now our bonds are looking square in the eye of the "Grim Reefer". Country after country has either drastically curtailed buying our debt, stopped buying our debt altogether, or is looking for ways to offload it on someone else.
It's utterly amazing that nothing has happened... yet! Now, the over-supply is creating a saturation in the market place, whose consequences have yet to be felt. Another week, another financial problem. That's what happens in a BEAR market: whatever CAN go wrong, WILL go wrong!
For more than a year, analysts have been warning that record-sized debt sales by the U.S Treasury were utterly inconsistent with a 10-year yield below 4%. This past week, the yield on 10-year notes jumped from 3.65% to as high as 3.92% on Thursday. On Friday, it was 3.87%.
Tame "reported" inflation, rising unemployment, the housing market slump, the Federal Reserve’s policy of a virtually zero Fed Funds rate and its purchase of up to $1.7 trillion in bonds have all helped keep Treasury yields near historic lows.
But, this week the mood sharply deteriorated as yields for $118 billion of newly-issued U.S. debt were much higher than forecast, sparking overall selling of Treasuries. Sentiment also deteriorated in the U.K. bond market after the government’s proposed budget failed to resolve doubts over future spending and debt reduction.
It hasn’t helped that the U.S. announced a big overhaul of its healthcare system this month, adding to worries about the scale of U.S. spending. Thank you Obamacare! (sarcasm intentional!)
Also un-nerving U.S. investors this week was a report by the Congressional Budget Office that falling payroll taxes, resulting from high unemployment, means that Social Security will pay out more in benefits than it receives for this fiscal year.
“A sustained rise in yields is upon us and bond funds will start to incur losses,” says Jim Caron, Global Head Of Interest Rate Strategy at Morgan Stanley. He expects 10-year yields to reach 4.5% in the second quarter, as investors pull their money from bond funds. March looms as the first month for negative returns for investors in Treasuries this year. Year-to-date, Treasuries have returned a scant 0.7% and threaten to slip into negative territory.
The 10-year note’s yield rose 15 basis points, or 0.15% , to 3.85%, according to BGCantor Market Data. The price of the 3.625% note due in February 2020 fell $12.19 per $1,000 face amount.
The increase in the yield was the biggest since an advance of 0.27% for the week that ended Dec. 25. The yield touched 3.92% on March 25, the highest level since June 11. The two-year note’s yield rose 0.05% to 1.04% and reached 1.12% this week, the highest level since Jan. 4.
Unfortunately, the unsatiable appetite to fund America's bloated budget can only get worse. The world has had it with our fiscal irresponsibility and the era of low interest rates will become harder to sustain.
Marko's Take
For new readers, please visit us on YouTube at http://www.youtube.com/markostaketv. Our newest episode on the legality of the Personal Income Tax will be posted in the next two days.
Showing posts with label Congressional Budget Office. Show all posts
Showing posts with label Congressional Budget Office. Show all posts
Sunday, March 28, 2010
Thursday, March 11, 2010
Budget Deficit On Parabolic Path
In February, the U.S. Government ran its largest ever monthly deficit — $221 billion, the U.S. Treasury said in releasing its monthly budget statement Wednesday. By comparison, the government in February 2009 ran a budget deficit of nearly $194 billion.
The U.S. February deficit came in below the Congressional Budget Office's (CBO's) estimate of $223 billion. The CBO projected the year-to-date budget deficit would hit $655 billion.
The CBO has forecast a $1.56 trillion deficit for fiscal year 2010, or 10.6% of the economy measured by Gross Domestic Product (GDP). This funding gap is up from a 9.9% share of GDP in 2009. But, the shortfall was forecast to shrink to 8.3% of GDP in 2011. This would be a drop of 50% from the level Obama inherited when he took office by the time his term ends in January 2013. Right! (Sarcasm intentional!)
The deficit's rise in 2010 was partly due to the $787 billion stimulus package Obama pushed through Congress soon after taking office last year to fight the recession. Obama, a Democrat, and ever so eager to accept responsibilty (sarcasm intentional!), pinned the financial mess firmly on his Republican predecessor President George W. Bush.
The CBO's budget deficit forecasts are premised on some pretty flimsy assumptions, such as that the GDP will grow by 2.7% in 2010, 3.8% in 2011 and more than 4% in successive years. As readers of Marko's Take already know, the economy is poised to re-enter the second dip of the Double-Dip-Depression, therefore, this assumption is preposterous.
The budget also assumes unemployment will fall to 8.2% in 2012 from 10% this year, while inflation stays mild and interest rates rise only slightly.
Government receipts posted a rare increase in February, while soaring spending pushed the nation's year-to-date deficit up to a record $651.60 billion.
The government's fiscal 2010 year-to-date deficit is up 10.5% from fiscal year 2009.
February 2010 marks the 17th consecutive month in which the U.S. has posted a budget deficit. The country has posted a budget deficit for 43 of the last 56 Februarys.
There was some good news. The government saw its monthly receipts in February increase on a year-over-year basis for the first time in nearly two years. An increase in corporate tax collections, coupled with lower refunds to individual taxpayers, drove receipts up 23% to $107.52 billion in February 2010 from $87.31 billion in February 2009.
The U.S. spent $16.1 billion last month to service its debt, an annualized amount of approximately $200 billion. Given the nearly $14 trillion in national debt, a 1% increase in interest rates would add $140 billion to debt service. That's why interest rates will NOT be allowed to rise until forced to do so by hyper-inflation and the demands of the market.
Undoubtedly, the "rosy" projections of the CBO will vastly understate the budget deficits that will ultimately be realized. In turn, this will create demand to borrow more money, which will expand the deficit and the vicious cycle will continue until the U.S. Dollar is debased to nearly worthless.
Think the country's on the right path? If so, TAKE ME ON!
Marko's Take
Please visit our new YouTube channel at http://www.youtube.com/markostaketv. We have 5 new episodes to be added over the coming weeks. Stay tuned!
The U.S. February deficit came in below the Congressional Budget Office's (CBO's) estimate of $223 billion. The CBO projected the year-to-date budget deficit would hit $655 billion.
The CBO has forecast a $1.56 trillion deficit for fiscal year 2010, or 10.6% of the economy measured by Gross Domestic Product (GDP). This funding gap is up from a 9.9% share of GDP in 2009. But, the shortfall was forecast to shrink to 8.3% of GDP in 2011. This would be a drop of 50% from the level Obama inherited when he took office by the time his term ends in January 2013. Right! (Sarcasm intentional!)
The deficit's rise in 2010 was partly due to the $787 billion stimulus package Obama pushed through Congress soon after taking office last year to fight the recession. Obama, a Democrat, and ever so eager to accept responsibilty (sarcasm intentional!), pinned the financial mess firmly on his Republican predecessor President George W. Bush.
The CBO's budget deficit forecasts are premised on some pretty flimsy assumptions, such as that the GDP will grow by 2.7% in 2010, 3.8% in 2011 and more than 4% in successive years. As readers of Marko's Take already know, the economy is poised to re-enter the second dip of the Double-Dip-Depression, therefore, this assumption is preposterous.
The budget also assumes unemployment will fall to 8.2% in 2012 from 10% this year, while inflation stays mild and interest rates rise only slightly.
Government receipts posted a rare increase in February, while soaring spending pushed the nation's year-to-date deficit up to a record $651.60 billion.
The government's fiscal 2010 year-to-date deficit is up 10.5% from fiscal year 2009.
February 2010 marks the 17th consecutive month in which the U.S. has posted a budget deficit. The country has posted a budget deficit for 43 of the last 56 Februarys.
There was some good news. The government saw its monthly receipts in February increase on a year-over-year basis for the first time in nearly two years. An increase in corporate tax collections, coupled with lower refunds to individual taxpayers, drove receipts up 23% to $107.52 billion in February 2010 from $87.31 billion in February 2009.
The U.S. spent $16.1 billion last month to service its debt, an annualized amount of approximately $200 billion. Given the nearly $14 trillion in national debt, a 1% increase in interest rates would add $140 billion to debt service. That's why interest rates will NOT be allowed to rise until forced to do so by hyper-inflation and the demands of the market.
Undoubtedly, the "rosy" projections of the CBO will vastly understate the budget deficits that will ultimately be realized. In turn, this will create demand to borrow more money, which will expand the deficit and the vicious cycle will continue until the U.S. Dollar is debased to nearly worthless.
Think the country's on the right path? If so, TAKE ME ON!
Marko's Take
Please visit our new YouTube channel at http://www.youtube.com/markostaketv. We have 5 new episodes to be added over the coming weeks. Stay tuned!
Monday, December 28, 2009
Obamacare... Part 3: The Economic Reality
Former Senator Phil Gramm said it best: "You can't give someone something for nothing unless you give someone nothing for something". And so it is with the notion of universal health care.
First, lets look at what the Obama Administration's own Congressional Budget Office (CBO) projects. Beginning with passage and continuing through 2019, the additional fees are virtually offset by the benefits, resulting in a picture perfect pay-as-you-go outcome.
However, the CBO is notorious for its bias in matters of projecting finances, be it spending, deficits or anything else. As an arm of the administration, it is a virtual certainty that some sort of accounting shenanigans have been played in order to "sell" the program to the 60 Senators who extorted the Admistration for various favors in exchage for their YES votes.
According to a recent article in the Wall Street Journal, the plan's most tangible efforts to restrain medical costs occur via restrictions on specialist physicians. Congress will constrain these doctors from employing various "costly" procedures which it has deemed wasteful. But who are we to argue with Congress? They must be right since so many of them are doctors and have NO intention of participating in the plan!
The Senate bill gives the Centers for Medicare and Medicaid Services the unilateral right to dictate the price and use of medical devices. The Obama administration has attempted to usurp these powers via the court system and LOST (Hays vs Sebelius)!
Furthermore, the Senate bill specifically denies patients the right to sue! Private providers, on the other hand, are held to an entirely different standard.
If for some reason you wish to review the entire plan, you can do so by clicking on the following link http://thomas.loc.gov/. Or, for general information about health reform, http://voices.washingtonpost.com/ezra-klein/health_reform/.
So, whether you find my little diatribe brilliant or idiotic, I DOUBLE-DARE you to "Take Me On" in the comments section below. Tomorrow, we'll revisit Gold.
Marko's Take
First, lets look at what the Obama Administration's own Congressional Budget Office (CBO) projects. Beginning with passage and continuing through 2019, the additional fees are virtually offset by the benefits, resulting in a picture perfect pay-as-you-go outcome.
However, the CBO is notorious for its bias in matters of projecting finances, be it spending, deficits or anything else. As an arm of the administration, it is a virtual certainty that some sort of accounting shenanigans have been played in order to "sell" the program to the 60 Senators who extorted the Admistration for various favors in exchage for their YES votes.
According to a recent article in the Wall Street Journal, the plan's most tangible efforts to restrain medical costs occur via restrictions on specialist physicians. Congress will constrain these doctors from employing various "costly" procedures which it has deemed wasteful. But who are we to argue with Congress? They must be right since so many of them are doctors and have NO intention of participating in the plan!
The Senate bill gives the Centers for Medicare and Medicaid Services the unilateral right to dictate the price and use of medical devices. The Obama administration has attempted to usurp these powers via the court system and LOST (Hays vs Sebelius)!
Furthermore, the Senate bill specifically denies patients the right to sue! Private providers, on the other hand, are held to an entirely different standard.
If for some reason you wish to review the entire plan, you can do so by clicking on the following link http://thomas.loc.gov/. Or, for general information about health reform, http://voices.washingtonpost.com/ezra-klein/health_reform/.
So, whether you find my little diatribe brilliant or idiotic, I DOUBLE-DARE you to "Take Me On" in the comments section below. Tomorrow, we'll revisit Gold.
Marko's Take
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