Friday, October 24, 2008

Bloomberg: U.S. 30-Year Yield Drops to Lowest Since Regular Sales Began



Yes, rates are collapsing even though the deficit is ballooning to a record. The debt/doomsday crowd just doesn't get it: there is no connection between the deficit and interest rates. Actually, one could even argue that a small deficit or worse, a surplus, actually can cause rates to rise.

2 comments:

Matt Franko said...

Mike,

Debt Doomsday Crowd (DDC) also cites credit card debt as another excess. They often cite the $1T credit card debt reported in the media.

I have always suspected that that $1T was high as card holders often use cards as cash/check surrogate for convenience and pay off balance at end of month/billing period. Now first proof:

Excerpt from Gene Epstein's column in this week's Barrons Mag:
"Yes, standards are being tightened on many users. But according to a source at CreditCards.com, approximately $400 billion of the nearly $1 trillion in outstanding credit- card debt is paid down completely each month, essentially used as a short-term interest-free loan. More than $500 billion of the rest is owed by users who pay somewhere between the full amount and the minimum due. Only about 6% of the total is owed by customers who pay only the minimum."

As you know, US monthly retail sales is $380B. So if this Barrons story is to be believed, this $500B of residual credit card debt only represents about 6 weeks or less of US retail sales that is financed by credit cards, this card debt number does not seem that large in this perspective to me...no?

Does the DDC think the US should have NO credit card debt? How many weeks of retail sales would be enough for them?

Thanks for your blog and radio show..

Mike Norman said...

Matt,

Good analysis. I agree. The DDC thinks any level of debt is excessive and a ticking time bomb. Bank credit and other forms of credit are all non-governmental "money." The expansion of this credit money was driven by demand. Unfortunately, fiscal "prudence" caused base money to become scarce, forcing non-governmental issuers of credit to issue second, third, fourth and fifth "derivatives" of the same base. It was too leveraged. The collapse of this structure is going too far in the other direction. A lot of base money has recently been pumped in, suggesting that the contagion should soon stop.