The eurozone is not sufficiently integrated, fiscally or politically, to deal with the problems it now faces. It does not have a centralized bond market that collectivizes the debts of the member states in order to keep borrowing costs low. Nor is ... Global Economic Slowdown: Stock Market Slide, Declining GDP, Rising ...
Counting the Cost looks at China's rapid economic growth; is it creating a stock market and property bubble that could undermine the global recovery?
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There has been a lot of recent discussion over whether or not there is a bubble in U.S. treasury bonds, and to tell you the truth there are some very compelling arguments for both sides. But before we get into some of these arguments Id like to take a moment to review the significance of the U.S. treasury bonds market.
If you ever wondered how countries are able to finance their spending while accumulating debt, the answer is that it would be through government bonds, which in our case are called U.S. treasuries. Treasuries are the debt financing instruments of the United States Federal government; they allow investors an opportunity to put their money into our country, offering a yield on their investment while financing our debt; essentially a loan. These investments are regarded by many to be one of the safest on the planet; however, there are some risks to investing in government bonds. If a country continually racks up too much debt and simultaneously takes a severe hit in their ability to generate tax revenues to repay that debt, then it is quite possible that investors would begin to slack off from buying their bonds, or worse yet, sell them. Remember, the higher the demand for bonds, the lower the yields or interest rates, while the lower the demand, the higher the yields and interest rates. Higher interest rates can cause great difficulty for these countries to repay their debt, so this development in many cases is a very unwelcome one.
Unfortunately, the preceding is what we saw in Greece and Spain this year. These countries have been building up tremendous debt through their reckless spending binges, and when the world went through a colossal down turn, their ability to repay their debts was severely diminished. It was at this time that bond holders began to rethink whether or not it was a wise idea to keep holding on to their debt. What ensued was a mass exodus of Greek and Spanish bonds, interest rates went through the roof making it almost impossible to repay their debt, and all of a sudden within just a few weeks there were fears of default, which basically meant that they wouldnt be able to meet their debt obligations. This sort of turn of events would have an extremely large negative effect. Greece and Spain have very small economies relative to the U.S., but the danger lies in the possible collateral damage. What most people dont realize is that many large banks are financing these countries debts, therefore if a country were to default on their bond obligations, the banks and investors that bought these bonds would end up with a huge loss. If these banks take a huge loss then their confidence to lend would diminish, banks could freeze up again not lending even to one another, and we could again be stuck with another round of systemic risk similar to what we saw in 2008 where investors sold out of their investment holdings driving down the prices of virtually every single asset class on the planet.
These turnings of events actually caused a positive unintended consequence for the U.S., as many of the banks, governments, and investors which were buying these Greek and Spanish bonds looked to invest their holdings elsewhere, and by default U.S. treasury bonds became a prime destination. So consequently as a result, demand for our debt went higher and yields went lower, allowing our country to borrow more money at a cheaper interest rate.
This is not the only driving force or source of demand for our U.S. treasury bonds. An area that is causing tremendous anxiety is our economy where there are fears of a double-dip recession or worse yet, a Japanese style loss of 2 decades. With these sorts of fears, they are causing many investors to move into U.S. treasuries and precious metals as opposed to other riskier assets such as stocks. When interest rates move lower on our debt that means that the bond market is signaling to the world that we are in for a very slow growth period for a protracted period of time.
So the question that everyone is asking, is there a bubble in U.S. treasury bonds? If you look at the sort of buying that is occurring and the amount of inflows that have gone into U.S. treasuries, it would indicate a bubble. However, there are many supporting arguments that would indicate that a bubble doesnt exist in the U.S. treasury bond markets.
1. Risky Southern European countries debt load is causing a rush into U.S. treasury bonds.
2.Slow U.S. economy is causing many investors to flee into U.S. bonds rather than stocks, indicating a very slow economy for the foreseeable future.
3.Fears of deflation and the absence of inflation (according to the Feds gauges) support lower U.S. treasury yields.
4.Savings rates are rising because people want to rebuild their finances following large losses on their homes and stocks. This means money will continue to funnel its way into investments deemed relatively safe such as U.S. treasuries and precious metals.
5.Bonds (and precious metals) are considered by many investors a good hedge and insurance against equity losses. In this sort of environment, it makes a lot of sense to try to protect your investment portfolio.
6.The elephant in the room is the Federal Reserve. The Federal Reserve is printing money and buying U.S. treasuries. This action from the Federal Reserve pumps more printed money into the economy and artificially keeps rates lower in order to attempt to revitalize our flailing economy (which wont be good for the value of the U.S. dollar in the medium to long-term).
On the other hand, when you look at our U.S. debt position, it would appear to be in conflict with sound business decisions that investors would want to pile into U.S. treasuries considering how much debt our country is accumulating. If investors began to reconsider owning U.S. treasury bonds just as they did with Greece and Spain, then wed highly likely see a snowball effect on our economy; interest rates would soar, the possibility of default on U.S. debt would rise dramatically, banks would freeze, investor sentiment would be next to zero, the economy would go back into a recession and possibly a depression, and the dollar would almost certainly plummet.
I would say that there are very powerful forces that are driving the U.S. bond market that would indicate that there isnt a bubble in U.S. treasuries. Having said that, the risks of default are tremendous and the markets can suddenly change without a clear warning to many seasoned investors. In my view, the warning IS clear, and personally I dont believe U.S. treasuries offer as much safety over the medium to long-term as what most people would believe. The risk vs. reward ratio in my opinion doesnt warrant the demand it has been receiving. A great friend of mine once said that bubbles can grow very large for a very long time before they burst. I wouldnt be surprised if this trend in U.S. treasury bonds continues for quite some time, but if it does begin to show cracks in its armor, which I believe it will, one of two things will occur, either we will default on our U.S. treasury bonds, or even more likely the Federal Reserve will have to switch gears on the printing presses from full throttle to hyper warp speed, which effectively will diminish the value of the U.S. dollar.
Remember folks, as the value of paper currencies become devalued, the value of alternate currencies such as precious metals becomes worth more.
Matthew Goldfuss
www.gold-observer.com
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Question by Peace Sustainability: Why do Republicans deny Clinton Balanced the Budget when Factcheck says YES, can you show source for denials? Clinton left Bush a balanced budget, and a budget surplus. Bush sank US into a downward slope of debt, 2 costly wars, and a Bank bailout. Clinton left office with Peace and Prosperity. Here are the facts. If you are going to deny this source, show a source. Your refusal to show a source is further proof that you don't have one, does that make sense? http://www.factcheck.org/askfactcheck/du… Q: During the Clinton administration was the federal budget balanced? Was the federal deficit erased? A: Yes to both questions, whether you count Social Security or not. This chart, based on historical figures from the nonpartisan Congressional Budget Office, shows the total deficit or surplus for each fiscal year from 1990 through 2006. Keep in mind that fiscal years begin Oct. 1, so the first year that can be counted as a Clinton year is fiscal 1994. The appropriations bills for fiscal years 1990 through 1993 were signed by Bill Clinton's predecessor, George H.W. Bush. Fiscal 2002 is the first for which President George W. Bush signed the appropriations bills, and the first to show the effect of his tax cuts. The Clinton years showed the effects of a large tax increase that Clinton pushed through in his first year, and that Republicans incorrectly claim is the "largest tax increase in history." It fell almost exclusively on upper-income taxpayers. Clinton's fiscal 1994 budget also contained some spending restraints. An equally if not more powerful influence was the booming economy and huge gains in the stock markets, the so-called dot-com bubble, which brought in hundreds of millions in unanticipated tax revenue from taxes on capital gains and rising salaries. Clinton's large budget surpluses also owe much to the Social Security tax on payrolls. Social Security taxes now bring in more than the cost of current benefits, and the "Social Security surplus" makes the total deficit or surplus figures look better than they would if Social Security wasn't counted. But even if we remove Social Security from the equation, there was a surplus of $ 1.9 billion in fiscal 1999 and $ 86.4 billion in fiscal 2000. So any way you count it, the federal budget was balanced and the deficit was erased, if only for a while. Best answer for Why do Republicans deny Clinton Balanced the Budget when Factcheck says YES, can you show source for denials?:
Answer by Ralph
The national debt went up every year of his term. How is that a surplus? BTW your link does not work.
Answer by PoBoy
Because as long a people believe lies, and vote on lies, Republicans will continue to lie.
Answer by ?
Conservatives will tell any lie to support their lunacy. It's better to just understand what conservatism is and what it does. Clinton proved the obvious, when we raise taxes on the rich the deficits disappear. He proved that we have a revenue problem not a spending problem. Actually our debt/GDP ratio went DOWN under Clinton. When conservatives understand the relativity of debt and it's relationship to the overall economy then maybe they will get it. http://en.wikipedia.org/wiki/File:US_Federal_Debt_as_Percent_of_GDP_by_President.jpg
Answer by Miss No Name
Congress writes and passes the budget, the president signs it or not signs it.
Answer by capitalist hero
When you liberals gonna learn that it's the man on the street that knows whats up.. not some egg head with statistics.
Answer by Edmon Rueger
Well, if it's on the Internet, it MUST be true.... lol
Answer by Love Sarah
Newt gets the credit even though it was smoke & mirrors- Clinton even admitted it! Clinton was a complete failure until Newt and Kasich came in and turned him around.
Answer by Thomas D
I was not aware that the President passed and wrote the spending bills in our country? I always thought congress did that so maybe we should say the Republican Congress balanced the budget.
Answer by I am me
FactCheck is a biased sight; founded, funded, and operated by lefties.
Answer by ugotthat
Because he actually did something as opposed to just talk about it. Oil is over $ 100 per barrel and gas is over 3.50 per gallon. What is the REPUBLICAN congress doing about it? They seem to be doing the same thing they did when Bush was President. Absolutely NOTHING.
Answer by Cris Ray
Bull there has not been a surplus budget since Andrew Jackson .When will liberals get it the truth is out there use it.
Answer by How would I know
And yet somehow, we still managed to increase federal debt each and every year Clinton was in office. Perhaps you should actually take some time to learn what a budget deficit and budget surplus are, and how they impact debt.
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