Coming Soon, Higher Interest Rates

Another problem with trying to finance our grand recovery schemes with debt.

To do all Obama wants to do, on top of what Paulson & Bernanke have already done, America needs a lot more money from China. At some point, China will decide that American debt is riskier than it used to be and will demand a better deal on their loans. In other words, higher interest rates are coming on Treasuries.

Those higher interest rates will push interest rates up through the entire American financial system, providing us with higher rates precisely when the orchestrators of our monetary policy want interest rates to drop.

The real reason for the season

Perhaps our economy's tanking because all our productivity's been sucked into the Youtube vortex. Speaking of which, check this out. Quite awesome.

Some Hope From the Melt

Remember a few weeks ago when Treasury elected not to buy the mortgage backed securities, and instead use their money to inject capital into banks (and ultimately, to prop up Citigroup by $320 billion)?

So, what happened to all those "toxic" securities then? Read this. It's an amazing lesson in how this whole fiasco should be handled. Washington just needs to get the f*ck out of the way.

What Happens When The Debt Grows Too Large?

Tuna Melt intends to do lots of research and make some predictions about where things are headed now that the US government is putting itself into an unprecedented amount of debt. Perhaps in the big scheme of things, all this debt will only be a drain on the economy that can be overcome with a few good years (by the mid-80's, there was lots of fear that the US would never get out of the Reagan debt, but after the arms race ended, it happened rather quickly, maybe we'll be so lucky again).

Or, perhaps we're just a few more sandbags away from sinking this balloon. What happens if that's the case?

I don't know. That's why we have the Internet. Let's all figure this out together. For starters, let's take a few moments to learn what we can about the Latin American debt crisis of the 80s

Friday Night Off the Cuff Solutions to the World's Problems

Readers probably know how Tuna Melt would solve the financial crisis. It involves private defense companies.

But what if Tuna Melt were to propose politically feasible solutions (ie - things that could actually be done by politicians today if they had the desire to do so)? Here we go.

#1. A moratorium on all new government debt. No new Treasuries issued until further notice. We've got to get the investment capital going back to productive purposes right away, like stocks and corporate bonds.

#2. Capital gains tax gone, completely gone, right away. Even the most hardened socialist now knows that this is a nonsense tax that actually reduces overall tax revenue simply through its existence. It only sticks around year after year because people are petrified that the uber rich could completely finagle their way out of paying taxes at all were it not present.

#3. Stimulus? Yes. The good old fashioned way. Tax rebates. The Keynesians are falling all over themselves to argue that the summer stimulus checks didn't work, but that's not what I saw. The prices of oil, gold, steel, food, EVERYTHING, took off like a rocket in the two months following that oh so sweet mailing (I have two kids -- my check was a nice fat one). The market is smart that way. Our rebate checks last summer were made entirely of funny money, financed with government debt, and the market heartily responded. The dollar plummeted, prices went up, tah-dahhh! This time....wait, didn't we just say no new debt?

#4. Cut government spending in line to match the rebate stimulus being sent out. Yes, I know, this was supposed be politically feasible. Allow a guy to think, if only for a moment, that in times of crisis, Washington actually could find a way to pull it together. They can't...I know it and you know it....oh man...we're screwed. But, supposing they could...note that the exact opposite of this is what's being proposed. Keynes's ghost looms in Washington right now, telling those goobers that the road to recovery is paved with government expenditures, but we're seeing quite clearly as we speak that it is not. Government can finance their expenditures through tax increases (would be disastrous) or debt, and government debt more than anything is what's strangling the credit markets, and unstrangling the credit markets is priority one in rescuing the economy.

#5. Pass income tax cuts. Pass 'em to whatever brackets you want. As big as you can make 'em.

#3 would be the only temporary measure. The rest would be permanent. The rest would result in long-term growth, enough growth that we might pay down some of this debt before the Medicare crisis arrives. What's that? you say. Medicare crisis? Did you not know that we've got a meltdown on the horizon that makes this one look like the '92 recession? That will be for another post down the road. That post might be titled "Default."

Follow The Bouncing Funny Money

90s: all stocks, but tech stocks in particular
2001: first half of 2005: all real estate, but American housing in particular
first half of 2005 - first half of 2008: commodities. oil, gold, silver, copper, food..
second half of 2008: US Treasuries, the dollar, the yen.

The loose money of the Fed has resulted in a roving speculative bubble that blobs from one section of the economy to another, sucking real investment along with it as it goes, and leaving tremendous overcapacity behind when it leaves. The amount of loose money pumped in from 2001-2004 grew the blob to such size that we've found trillions of dollars worldwide mis-invested into capital projects with no return. Down goes Bear Sterns, Lehman, Washington Mutual, Wachovia...

What's frightening now is that the over-investment is in US treasuries. At least when the loose money was in housing, a house was built. Now that it's in Treasuries, the loose money is funneled straight into the Washington productivity incinerator.

this is great

This Thingsgiving, I am thankful for things like this.