Walking through the crash

 Starting, the Fed raised rates a bit in mid 2004 and a small downward kink appeared at the ten year.  Housing was rebalancing, the kink was the current years losses due to imbalance. Then in 2006 housing stopped its losses, its kink that year was gone, but oil showed a kink, farther out. Oil market raising retail prices and socking in gains with 20 year bonds.  Then we crashed, which was really a huge kink way out at the thirty, the real economic yield curve was linear down, then a bell during the crash then housing and oil, having rebalanced no longer added a kink, the remaining kink causing positive price rises are explicit or implicit taxes and less borrowing by government on the long end. The rise in debt, at the crash was government quantizing its current losses.

Government is still trying to rebalance and still paying the additional cost this year.  It is still adding a 1% downward kink it the economic curve. We compensate in two ways, we reduce growth, shrink government and find ways to rebalance the government chain.

The kink are unexpected losses, and government does some effort to correct them. But government adds more, like Obamacare where there should be more kinery by a percent. The net might be a 1.5% kink.  How is it covered? Austerity, some ijn the priovate sector but mu8ch in the govenmet sectors. Reduced government programs, delayed government activities, fewer government workers, less transfer payments. Govenment wants to survive.

Government deliveries drop by a point, the private sector drops deliveries a half, and real growth drops to the 3% range, we hope. It the kink drops to zero, say a the ten year, then government is stopped, except for the folks trying to restart Obamacare.