Wednesday, January 4, 2017

Debt rises, ten year rate drops

The undebt hawks, the Dean Bakers, always say, debt rises, rates rise; never looking at this chart. Maybe Dean should post this chart, then recite the comic book.

The  rate is now range bound

We went over this, under the current terms of trade, the ten year cannot drop close to 1.5, as the cost of FX insurance is too great.  And, as we can all see, except Dean, yhe ten year ios not going up much beyond 2.5 without a change in terms of trade.  We are debt bound.

The safe rate is a derived variable in the economy.  It is the rate the Congress pays.  The benchmark is the ten year because Congress engages in activities that take five years, generally.  The activities are a semi-repeatable sequence, and is adequately measured after two repeats.  Hence, the debt cartel will shit time, they move the X axis on the yield curve to the left so the ten lines up with the knee of a cumulative probability distribution.

Or, the ten year rate is set by estimating the incoherence between taxes and expenses over the standard ten year activity period. Treasury bonds are the safe 'time', it is never really a market outcome.  The effect of the yield curve left shift are evident in velocity, down consistently.   More debt right now and Congress cannot work, they run out of time.

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