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Another Fed Fiasco: US Bond Yields Fall To Record Lows – OpEd

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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.


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Mike Whitney

Mike Whitney

Mike Whitney writes on politics and finances and lives in Washington state. He can be reached at [email protected]

One thought on “Another Fed Fiasco: US Bond Yields Fall To Record Lows – OpEd

  • July 4, 2016 at 10:19 am
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    This is really good work. Simply, as the price of bond rises, yield declines. Moreover, as the growth of the economy falters and risk of a major collapse rises, financiers reallocate their funds toward buying gold and US government bonds for safety. Thus, as demand for bond rises, prices of bonds increase and yields decline. In fact, some think the economy is so bad and ill invest in bonds for negative yield: they pay for bonds more than what they will obtain for them.
    Veblen thinks that in many cases the Fed is practicing sabotage for defending the financiers’ profitability. Moreover, the Fed and the government both represent institutions that implementing the primitive accumulation of capital by looting money from foreign and domestic bond investors for the wealthy financiers who control the Fed and the Federal government.
    The condition of the economy is in a crisis phase, when what Marx called fictitious capital appears. Fictitious capital says partly that the globalized monopoly capitalism led by the USA has been suffering a general decline in the rate of profit. And this decline, particularly in the production component of the economy, has been forcing capitalists to reallocate their wealth to the stock markets, real estates, and all finance for making super-profits whether by buyback, market manipulation of exchange rates and gold, looting, speculation, or foreign investments to milk foreigners. To defend the condition of rising fictitious capital, the government is spending on military to threaten other countries such as China and Russia.

    Reply

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