What will happen in the economy if 10 year treasury yields hit 5.3% like in 2003?
- Thread starter KINGOFSHORTS
- Start date
After we saw the S&P 500 go up by 400% since 2008 it's certainly possible that happens again as well. Or a giant asteroid could hit us, or a virus that actually kills 50% of people and is transmitted like COVID could emerge, or we could end up in another world war or...... Sure, nothing is off the table, but that's a somewhat meaningless statement.
Thank you for that distinction on economics as discussed in a trading forum. I'll spell out my point for you since it seems to have flown over your head. In 2009 we saw exactly the same hand wringing we're seeing in this thread about exactly the same thing. It not only came to nothing, but the opposite of what was predicted then and is similarly being predicted now actually happened.
In an attempt to be humble and admit I don't have all the answers, I admitted that I believed in the economics of the situation in 2009 enough that I put my money where my mouth was and invested on the thesis that inflation was around the corner. I lost money doing that. Yes, that's on me, that's my entire point! If you're going to plant a stake in the ground on anything you should be willing to put your money where your mouth is or else you're just mouthing off.
It's true that government uses the word "debt" but the meaning for "government" in the abstract, is not at all the same as the meaning of that word to you in the private sector. Imagine you had a money machine in your basement and any time you needed money you could get it, as much as you needed. This is somewhat the situation for the government, not exactly though. You could in fact crank out all the money you wanted to satisfy your own needs and not affect the purchasing power of the money you cranked out one bit, so you wouldn't need any way to take back some of the money you spent. That's not true for the government however. The government needs a way to take back some money when it has spent so much that each unit won't buy enough. The government has the ability to do that, and it uses it when necessary. What you call government debt is the same as the net, cumulative deficit.
When the real GDP grows and the population increases, deficits are absolutely necessary to prevent deflation and a recession. Deficits are also needed for long term investments in such things as education and infrastructure. And moreover, these essential deficits must never be "paid back." They can't be, and it would be ridiculous to try to do that. If we did that, we'd cause a depression in the country the likes of which have never been seen.
Instead of worrying about government "debt," you should be concerned about the quality of leadership at our Treasury and Central Bank and in the White House. Right now it's pretty good, It was terrible at the top these past four years and we were all in danger because of it. Now things are looking up and we are going to have, next year, an economic boom like we haven't experienced since the golden days following WW II. Get ready, "Happy Days are Here Again!"
I should mention something of debt servicing, since several here have brought this up. I think this is a valid concern, or at least a potential long term concern. It is something I have been thinking about lately. Debt servicing of Treasuries is non-discretionary spending, like entitlements, and there is a risk, it would seem, that eventually, if debt servicing is allowed to grow to the point that it becomes a significant portion of overall spending, that it could begin to crowd out discretionary spending. Because there are practical constraints on the rate at which government can increase the amount of outside money it spends into the economy. Also, the total amount of money the government can issue and spend into the economy is tied to productivity which provides the ultimate constraint on most everything. We are in the habit of issuing "debt" tied to deficits (usually issued long after the deficits are booked). This gives the outward appearance at least of the government "borrowing" money. But don't be fooled by this appearance.
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5%+ yield sounds bullish for stocks/ETFs when even SPY averages12% yearly over a long time.
BUT with all the downtrends\shorts in TLT/maybe people are rethinking lending the US gov money/LOL............................................................................................................
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NOT a prediction, not suitable for all investors+ study charts more than tape. Econ can be a fun read if one like$ to read.Who is your LSD provider? Great stuff, apparently.
You are at best a basement home economist who is badly trippin'...
Paraphrasing:
"we had some horrific past four years at the top of the Fed and treasury but now things are great because those dudes are really cool now. And the government issues debt and can reduce the debt but it can actually never do that and hey, we don't need to worry about the issued debt that is spiraling out of control. Anyway the government can't repay. Just worry about the cool dudes at the top of the treasury and fed"
You are at best a basement home economist who is badly trippin'...
Paraphrasing:
"we had some horrific past four years at the top of the Fed and treasury but now things are great because those dudes are really cool now. And the government issues debt and can reduce the debt but it can actually never do that and hey, we don't need to worry about the issued debt that is spiraling out of control. Anyway the government can't repay. Just worry about the cool dudes at the top of the treasury and fed"
Actually I am just a humble student of economics. My mentor is a well known, in his field, Rutgers - Harvard trained economist, and he says I am his best student. But I know it is just in jest. I hope you'll find that comforting.
I'd be interested in your own take , since you do have opinions, on where the economy is headed. (Your paraphrasing could be improved.)
It's really simple. Where does inflation take the economy, that is the question that should be asked. History has taught us that the bill of lavish government spending and a Fed that is trying to catch up will always have to be paid. A Fed that is behind the curve, which they generally are, can keep fed funds and hence all benchmark rates out of whack for a longer period of time. In the end, inflation, bond yields, and benchmark rates are all linked of course. But there is no hard formula that forces a direct BP for BP relationship. Fact is that inflation is slowly creeping up. What we all ought to focus on is how inflation will move forward. All else follows from that. And that is how all large funds, such as Odey Asset Management, position their investments.
5.3% in 10 year yields is not a magic number at all. What does matter however, is how the Fed is positioned and how much debt the government is issuing in a situation where 10 year yields exhibit such levels.
Like with everything in trading and investing, the market generally has a lot deeper pockets than anyone who dares to bet against it. Hence timing is generally the hardest part, not forecasting direction. Many not so wise market operators got a taste of that when they repeatedly attempted to bet against JGBs throughout the past 1 or 1.5 decades. I also heard of several very large funds who thought it to be wise to lock in 10% in the 30 year but were subsequently forced out of the trade because it headed up to almost 14 or 15% (would need to check the exact levels) in 1981/82.
5.3% in 10 year yields is not a magic number at all. What does matter however, is how the Fed is positioned and how much debt the government is issuing in a situation where 10 year yields exhibit such levels.
Like with everything in trading and investing, the market generally has a lot deeper pockets than anyone who dares to bet against it. Hence timing is generally the hardest part, not forecasting direction. Many not so wise market operators got a taste of that when they repeatedly attempted to bet against JGBs throughout the past 1 or 1.5 decades. I also heard of several very large funds who thought it to be wise to lock in 10% in the 30 year but were subsequently forced out of the trade because it headed up to almost 14 or 15% (would need to check the exact levels) in 1981/82.
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Thank you. There is absolutely nothing to disagree with here! Nor is there anything in the least inconsistent with what I have posted. It is refreshing to have you respond in substance. Check back with me in 18 months, and lets see whether I'm right about the effect of tremendous goosing of our economy with demand side stimulus. Hold onto your hat!
Debt is an issue but it's not so big an issue that it can't be solved with some unpopular political decisions.