Plunging Consumer Confidence and Treasury Yields, Economic Depression Is Here

Plunging Consumer Confidence and Treasury Yields, Economic Depression Is Here

Is that a 3-handle I see on the long bond and a 2-handle of the 10-year treasury? Why yes it is.

The week is not over yet but this looks rather ominous. Treasury yields are back where they were in April of 2009 at the start of the so-called "recovery".

I am not quite sure why the 3-month treasury displays as a flatline at .5. The flatline is closer to 0.

Inquiring minds note that the Consumer Conference Board Confidence Index Drops Sharply.

The Conference Board Consumer Confidence Index® which had been on the rise for three consecutive months, declined sharply in June. The Index now stands at 52.9 (1985=100), down from 62.7 in May. The Present Situation Index decreased to 25.5 from 29.8. The Expectations Index declined to 71.2 from 84.6 last month.

Those saying conditions are “good” decreased to 8.0 percent from 9.7 percent, while those saying business conditions are “bad” increased to 42.4 percent from 39.5 percent. Consumers’ assessment of the labor market was also less favorable. Those claiming jobs are “hard to get” increased to 44.8 percent from 43.9 percent, while those saying jobs are “plentiful” decreased to 4.3 percent from 4.6 percent.

Consumers’ short-term outlook, which had improved significantly last month, turned more pessimistic in June. Those anticipating an improvement in business conditions over the next six months decreased to 17.2 percent from 22.8 percent, while those expecting conditions will worsen rose to 14.9 percent from 11.9 percent.

Either the present conditions are about to move back up or the expectations index is about to plunge as well. I expect the latter. Expectations for improvement are way too optimistic, not that a reading of 71 is optimistic at all. It isn't.

Structural problems are immense and the sad fact of the matter is those problems cannot be cured by more deficit spending. Krugman is correct about a depression, just wrong about the cure. Logically the disease and the cure cannot be the same.

By the way, a depression is not coming, we are clearly in one, a deflationary one at that. Once again, those chanting hyperinflation all missed the boat by light-years.

Various safety nets like food stamps, unemployment insurance, and of course people no longer paying their mortgage and living in their houses for free all mask over the depression.

Depression is The Price We Pay For Budgetary Murder and contrary to Krugman's belief, further budgetary murder cannot possibly cure anything.

Before you can fix anything, you have to understand what the problem is and what caused it.

What causes depressions is an unsustainable runup in credit and debt that precedes it, NOT a failure to go deeper in debt.

Anyone who understands 5th grade math should be able to figure that out. Unfortunately, Nobel prize winning economists can't.

In this case, a spendthrift Congress coupled with loose monetary policy at the Fed, effectively encouraged housing and other speculation. The depression we are in now is a result of massively failed policy. The same policy cannot possibly be the cure.

Give Congress the boot and vote in those against bank bailouts, Fannie Mae bailouts, excessive military spending the US simply cannot afford, and other free-lunch policies.

I guess in this area, people can rightly say it is Bush's fault. He had 8 years to reign in spending by proposing downsizing entitlements when things looked pretty rosy (people could stomach less spending when unemployment is 4.8%) and use his veto pen, but he hit the accelerator.

Now we have a communist congress and executive branch and sheeple think the cure is "not Bush". Some people are slowly waking up, but I think it's too little, too late with Axlerod and Soros pushing every marxist program of government economic controls that can be written. Now we have the Euro house of cards caving and Obozo won't be able to convince them to keep over spending.

Prepare for the worst.

In fact, that is what the Russian economist, Kondratieff, suggested is the natural result of these cycles. The end of the “K-wave” cycle, which is about 70 years long, is war, he suggested.

For those who want to attribute these things to cycles, I strongly recommend reading up on the “super cycle” or “K-wave” which is inspired by Kondratieff’s work. Kondratieff was an interesting and tragic character in economics; an ag economist in Russia (can there be a more miserable and futile position?), he was tasked by Stalin to examine who allocated capital more efficiently - the capitalist west or the centrally-planned Soviets?

K came back and said “for all their boom-bust cycles, the capitalists” - in a sort of fore-runner of guys like Schumpeter, Kondratieff said that the destructive phase (ie, deflationary side of the wave) caused capital to be re-allocated into the better manager’s hands, to set up for the next expansion. However, in the deflationary side of the cycle, excess capacity has to be either destroyed or re-deployed.

Well, the destruction of international excess capacity, Kondratieff suggested, is what resulted in wars.

And, in fact, subsequent to Kondratieff’s death in the gulags (Oh, you didn’t guess that already? Stalin was pissed at the results of his study), we see in WWII that the world had HUGE excess capacity going into WWII.

How did the US economy roar out of WWII? We bombed the competition into rubble. And then we sold them the stuff with which to rebuild... because we were the only guys left with huge capacity to produce. Convenient outcome for us, eh?

Look back at the history of the 1870’s and the “Long Depression” and we see that Europe had over-capacity as the US industrial capacity was ramping up in a HUGE way.

Right now, we have Europe and the US with over-capacity, Japan with too much capacity... and China is ramping up in a huge way, which India hot on their heels.

I don’t think that we’ll see a war this time ‘round tho. Too many nukes. Which means that we’re going to see some extravagantly silly policy ideas on what to do with all this excess capacity.

Never forget that there is NO idea that is too silly to gain consideration by Ivy League academics.

“I don’t think that we’ll see a war this time ‘round tho. Too many nukes. Which means that we’re going to see some extravagantly silly policy ideas on what to do with all this excess capacity.”

Not quite so sure of that. Iran wants a big conflagration to reveal their 12th Imam. If that is what they believe than that is what WILL happen sooner or later. True enough the eagle and the bear may not be exchanging nukes over the north pole but there still is opportunity for plenty of destruction.

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