“Terrible” Treasury Auction Exposes Hole in Obama Econ Plan

Posted May 8th, 2009 at 2.45pm in Ongoing Priorities.

The U.S. Treasury auction of long-term bonds on Thursday was “terrible”, in the words of one Wall Street economist, with the rate on the 30 year bond jumping from 4.1 to 4.3 percent. This is just the first sign that the debt-based Obama economic stimulus plan is about to become a major drag on the recovery, just as expected.

The economic news is not all bad. We are seeing signs the rate of contraction is abating quickly, promising a bottom to the recession sometime this summer as many forecasters have expected. But therein lies another piece of the interest rate puzzle, and the trouble ahead.

There are two critical consequences to the economy stabilizing. The first is that the massive liquidity injected into credit markets by the Federal Reserve and central banks around the world transforms from economic medicine to inflationary heroin. Central banks are going to face a difficult task of extracting the excess liquidity before inflation soars and without causing another recession. Doubt about the fight against soaring inflation means higher inflation premiums in interest rates.

The second dangerous consequence is that President Obama is on course to double the national debt in just four years. After years of complaining about annual deficits of $300 billion or $400 billion and their effects on interest rates, liberal commentators are suddenly silent now that the deficit is heading toward $2 trillion under a liberal administration. But now the vaunted “crowding out” effect from government borrowing is almost a certainty, as are the resulting higher interest rates.

Healing financial markets and a stabilizing economy generally translate into higher interest rates for long-term, high-quality bonds like 30-year Treasuries. The effect of the projected massive government borrowing, however, is to drive interest rates as much as a full percentage point higher yet. This will mean higher interest rates for consumer loans, mortgage loans, business loans, etc. Instead of a 6.5 percent mortgage rate, home buyers will face a 7.5 percent rate. The debt-based Obama economic stimulus plan is about to become a major drag on the recovery, just as expected.

The release of the bank stress tests the same day and the expectation that credit markets would be quickly tapped by the banks to make up any capital deficiencies are certainly extenuating circumstances as we interpret the spike in Treasury rates. Even so, the Treasury auction signals real trouble ahead.

Author: J.D. Foster
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May 8, 2009 Buzzm1 SF Bay Area writes:

Who wouldn’t have thought about Treasury auctions and interest rates.

As if by magic, the obvious comes into play.

May 8, 2009 Interest Rates » “Terrible” Treasury Auction Exposes Hole in Obama Econ Plan » The … writes:

[...] Read the rest of this great post here [...]

May 8, 2009 Truth Hurts, The Real World writes:

Watch the other hand,here comes the chains you can believe in ! Nationalized Banks!can you see a time when our votes are public record[IE union free choose] Are we all going to set silently by while these fools destroy our Country?Lets see the CEO is the new Jew !Divide and conquer.Acorn and La Raza recruits for the new gestapo!And I might add just as racist as the Aryan nation and a much greater threat to our freedoms!How come there not on Homelands List???

May 8, 2009 » Financial News Update - 05/08/09 NoisyRoom.net: “Extremism in the defense of liberty is no vice. Moderation in the face of tyranny is no virtue.” Barry Goldwater writes:

[...] “Terrible” Treasury Auction Exposes Hole in Obama Econ Plan [...]

May 9, 2009 Spiritof76, New Hampshire writes:

We are headed into double digit unemployment, interest rate and inflation in the next 12-18 months. The economy may be showing some recovery by way of slowdown of contraction now. There can not be any real recovery as the taxes will skyrocket with all the other negatives. Am I an economic expert? Hardly. It is basic common sense. You must forget about tooth fairies.

May 9, 2009 Barb -mn writes:

oops!

May 9, 2009 Instapundit » Blog Archive » A “TERRIBLE” Treasury auction…. writes:

[...] A “TERRIBLE” Treasury auction. [...]

May 9, 2009 RSweeney writes:

So why is it that we allow a bartender like Obama to give “free” drinks (on the tab) to an America with a hangover and a drinking problem?

Perhaps we need to have a bit higher standards for journalism schools. Or better, an elimination of liberal monoculture there.

May 10, 2009 Dracovert, Houston writes:

“After years of complaining about annual deficits of $300 billion or $400 billion and their effects on interest rates … ”

Well, yes. LBJ’s 1965 War on Poverty quickly disintegrated into a wasteful, corrupt, destructive disaster, kept alive for thirty years by Democratic financial and political beneficiaries of the corruption at a total cost of $6.6 trillion (WaPo). Just two years ago, the federal debt passed the $ 9 trillion mark, and almost exactly three-quarters of that debt went directly back to the wasted money of the War on Poverty.

Now Obama is throwing away a much larger amount of money and the waste, corruption, and destruction will be the correspondingly greater. The beneficiaries, beside Democratic politicians, are so far now firmly identified as the NEA and the UAW, two of Obama’s strongest supporters in the recent election.

May 10, 2009 Some Guy writes:

Anyone accepting an interest rate on a 30-year note that’s not in the double digits is simply not paying attention. The Fed is inflating the currency like crazy.

May 10, 2009 OM writes:

What a crappy, unreadable font you guys use.

May 10, 2009 Fat Man writes:

Don’t forget oil. During the last few weeks, the price of oil has gone up to ~$60/bbl. It is another source of counter stimulus.

May 10, 2009 Obama’s medicine « Vermontwoodchuck’s Blog writes:

[...] “Terrible” Treasury Auction Exposes Hole in Obama Econ Plan The U.S. Treasury auction of long-term bonds on Thursday was “terrible”, in the words of one Wall Street economist, with the rate on the 30 year bond jumping from 4.1 to 4.3 percent. This is just the first sign that the debt-based Obama economic stimulus plan is about to become a major drag on the recovery, just as expected. [...]

May 10, 2009 silence writes:

But God gave us Obama to cure everything in the world. You must be mistaken. Probably a racist

May 10, 2009 Gary Rosen, CA writes:

“We are headed into double digit unemployment, interest rate and inflation in the next 12-18 months.”

Not to worry. It will all be Bush’s fault.

May 11, 2009 Tom McKinney, Dunwoody, Georgia writes:

Higher interest rates–and resulting higher interest expenses–might slow down the growth in the national debt, now at 11.3 Trillion dollars! That is just my opinion!

Tom McKinney
Dunwoody, Georgia

May 11, 2009 Barb -mn writes:

God doesn’t give us evil! That is man-made! Acorn gave America Obama! Freedom of Choices of mankind. Freedom of choice to fraud the system. Freedom of choice to run corruption. Freedom of choice to free the guilty and terrorize the innocent. Freedom of choice to deceive… on and on it all comes from freedom of choice.

May 11, 2009 Richard, Dayton Ohio writes:

Any news about the bottom of the recovery coming anytime soon is pure hog wash.

You cannot find any reporting to the possibility of systemic failure of the banking system brought on by risky derivatives; credit default swaps. These are the holding that brought down Bear Stearns and Lehman Brothers.

No one has been talking about this. Until there is full disclosure about the economic woes, the bottom is nowhere in sight.

May 11, 2009 Al, The Villages, Fl writes:

I’m not an economist and don’t understand the theory that the Obama administration is using but the increase in interest rates, the reduction just announced in tax revenue for this year all make sense to me. I remember Carter years and the 18% interest rates - this recession with the moves the administration is making should be worse overall. I like the analagy of taking a bucket and filling it in the deep end of the pool and dumping it in the shallow end and wondering why the pool level isn’t rising. Seems to me that’s what increasing taxes will do (except the overall level of the pool will decrease in time).

May 11, 2009 Tom, Georgia writes:

Could this have been the beginning “drip…..drip” that will now grow to cascade uncontrollably into the deluge of a total meltdown?

I reckon it very well could be and if so, once started, it’s “Look out below. Here we come.”

To have a sound understanding of the nature of money it is first necessary to have a sound understanding of the nature of cost.

May 11, 2009 David,Jacksonville writes:

The majority of job creation will be in hundreds of government agencies, (administering
new programs and pork), education, and in healthcare reform already highly taxed .
Industrial jobs that are substantial and profitable will be few. Where will Fiat`s new
team come from?, not detroit.

May 11, 2009 Lynn B. DeSpain writes:

How interesting that in actuallity the first two consequences, are of no consequence at all! Not until America wakes up, (meaning the citizens) and realizes that we all have been lied to for so long that now the lies seem like the truth! Lie #1; Global Warming! Lie #2; Fossil fuel! Lie #3 We can borrow our way out of debt! #4; We can change the weather, its history and its patterns! Lie #5; Illegal Immigrants are not really breaking any Law! Lie #6; Industy’s polution is ruining our Planet! Lie #7; 55 mph has been proven to save lives! Lie #8 Second hand smoke causes Cancer! And the list goes on and on.
The only thing of any consequence that will have any effect on anything else, is JOBS! We, Americans, need to explain to our employees, Congress and the President, that we do not believe you anymore and this is what you WILL do; Stop adding alcohol to our gasoline! A 1959 Rambler averaged 36 MPG without even trying! Stop all the ‘GREEN PROJECTS’ and any and all refernces to alternate energy sources. If there is a profit in it, private enterprise will come up with it! Stop with all thisgrabbing of land and calling it a Park just to stop drilling for our own resources! We have immence amounts of Oil and Natural Gas, of which neither is a Fossil Fuel, and we, as a Nation, need to tap our own, refine our own, and store our own. And maybe just sell it at a higher price to someone else, like all those who call us names, including France, Germany, and other parts of the World. Stop with all these rediculous Lead Paint over kill rules! My God! Children now cannot even buy a mini-bike or a go-kart, or a bicycle, or an ATV, at a price their parents can afford, because it has some Lead in the paint! Hey, the kids aren’t going to eat those things, they’re going to ride them stupid! Get ride of 95% of all the Laws that Congress has passed in the last fifty years and let’s just start over! Bring back Industry. That will bring back the Service jobs. The formula is still the same, for every one Industrial jobs, five service jobs are created!
Hozro

May 12, 2009 Tenn Slim, Tenn writes:

ALL
1. In order to meet the Soros goals, OBNA HAS to continue the Recession effects. It will be up here, and down there, but the overall effects MUST be MAINTAINED to justify the Leftist Activities of imposed controls, regulatiory controls, legislative controls, to meet there own “windows of opportunity”
That said, watch the rhetoric, blame the SEC, the NYSE big guys, the Various Large Companies, this and that, but not OBNA nor his minions.
2. Watch for new efforts to manage the Logistics of the Economy. Now that the fiscal effort is stalled, or slowed, expect new efforts to get at the heart of the USA Capitalistic system, the Transportation industry. So far, not touched. But is sure to be the next on the control block.
end

May 12, 2009 Morning Bell: Obama Trek: The Search for More Money From the Hertiage Foundation « Thoughts Of A Conservative Christian writes:

[...] So why is an extremely popular new president barely 100 days into his administration recycling failed policy ideas from the ’70s? Math. Yesterday the White House released numbers showing the federal deficit will reach $1.84 trillion this year; $89 billion more than they forecast just this February. The day President Obama was inaugurated the deficit stood at $1.2 trillion; meaning $600 billion has already been added during his four-month presidency. An AP poll last month shows that while Obama’s overall approval rating was 64 percent, just 49 percent approve of his handling of the deficit. And voters are not the only ones losing patience with Obama’s deficit spending. Last week investors around the world signaled Obama’s easy money days were soon coming to an end when they demanded significantly higher interest rates for 30-year Treasury bonds. [...]

July 8, 2009 The Obama Economy is Failing « Conservative Thoughts and Profundity writes:

[...] demanding higher interest rates to soak up the tremendous flows of debt coming out of the Treasury. This will mean higher interest rates for consumer loans, mortgage loans, business loans, etc. The debt-based Obama economic stimulus plan has become a major drag on economic recovery, just as [...]

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