And with good reason. The presumptuous Standard and Poor’s downgrade of United States Treasury bonds isn’t working out real well. As a last-ditch effort it looks like a bust. The Asian markets are reporting that the bonds themselves seem minimally affected.
The 10-year Treasury yield increased to 2.579 percent, from 2.563 percent at Friday’s New York close, while the yield on two-year Treasuries fell to 0.268 percent from 0.292 percent, contrary to some predictions of a much more aggressive initial market reaction.
But, to see the real source of the malaise, what is needed is a little historical perspective. Which is what this chart of the twenty year yield of ten year bonds tells us.
There’s a more detailed analysis of how the stream of unearned income is perceived by the moneyed class here. But, it doesn’t require much analysis to see that when people used to get 8.1% for just lending money to Uncle Sam, they’re not happy campers when the return is 2.5%.
Never mind the illogic of charging people, who don’t have much money to begin with, more for borrowing some than people who have plenty and have less reason to be careful with it. The notion that a credit rating industry which sprinkled gold stars over junk real estate loans and precipitated economic collapse is now in a position to evaluate the entity that prints the bucks would be ludicrous, if it weren’t so sad.
But, it does signal that the money lenders are getting desperate. What Warren Stephens refers to as the federal government “allocating credit” represents a real challenge. If the federal government reclaims the public purse and determines who gets to use money and for what purpose, the financial sector of the economy will be seriously undermined. What will the banksters do, if they no longer get to decide who should own a house, a car, “afford” children or get hired for a job?
I’m reminded that when we bought our second house and took out a loan to rebuild, refurbish and renovate an 18th Century house, the banker made us promise to buy an electric saw. Having doubled our equity in our previous house in two years using a hand saw didn’t give us enough credibility. Credit worthiness, it turns out, is even more fungible than our troops. Never mind that two trillion dollar error. All that demonstrates is that it’s not about the numbers.
Indeed, finding hard numbers is increasingly difficult. The number $2.5 trillion seems popular. For a while that was estimated to be the annual cost of U.S. healthcare (including building construction). Then it was rumored to be the amount of cash industry and finance are hoarding, even as Congress wrangled over reducing federal budgets (plans to spend) by that amount during the next TEN years. Talk about trivial pursuits. On the other hand, that home owners lost $8.2 trillion in the value of their real property in three years (between 2007 and 2009) is not trivial. Discount the $5 trillion in the bubble and home owner loss is still in the $2 trillion range, a third of what they started with in 2002. Which is probably not what Greenspan had in mind when he proposed to “liberate” (for use by the market) the equity Americans had accumulated in their homes. Now he’s nattering about the American psyche!
“What I think the S&P thing did was to hit a nerve that there’s something basically bad going on, and it’s hit the self-esteem of the United States, the psyche,” said the former chairman of the Federal Reserve.
Psychics in charge of the money is not a good thing. “If wishes were horses …”