The Sky Is Falling!

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The sky is falling!  The sky is falling!  These are the ridiculous proclamations of the MSM because the yield curve has turned negative.  That’s where long-term bond rates (returns on investment) are lower than short-term rates (returns).

The yield on the Treasury’s benchmark 10-year note fell to 1.59% Wednesday afternoon. Earlier in the day it had briefly traded below the return on the Treasury’s 2-year note, something investors haven’t seen since June 2007. That spooked the equity markets, with the S&P 500 Index down by more than 3%.

Financial pundits in the MSM led by CNN immediately called for a US recession. They pointed to the fact that China’s industrial production grew at the slowest rate in 17 years in July while Germany’s economic output actually shrank slightly in the second quarter.

Let’s look at the bigger picture from the 30,000 foot level.  One has to start with the idea that, in economics, there is something known as supply and demand.  This idea is economics 101 and has been intentionally overlooked by the MSM financial “experts.”

As noted by Sundance at The Last Refuge,

The long-term borrowing rate for return on investment dropped momentarily lower than the short-term borrowing rate of return on investment because massive numbers of foreign investors were rushing to buy long-term U.S. bonds.   Wait… what?  Yes, a ‘negative yield curve’ is what happens when everyone wants to buy bonds in your long-term economy.

There weren’t enough long-term bonds to fill the demand of those who wanted to purchase them.  Ergo, the return rate of interest dropped because there was no need to have an incentive to sell them…. everyone wants them.

So the yield drops, because the U.S. doesn’t need to incentivize the sale… because everyone is lined up to buy them.  See how that works?

Why are investors rushing to buy US bonds?  As noted, overseas economies are slowing and, in some places, have actually turned negative.  In addition, currency devaluations have been occurring overseas which have actually turned the rate of return negative in some places.  Would you want to get 1.59% return in the world’s strongest economy or a -0.65% (Germen government bond) return in one that is contracting?  Keep in mind that a negative return means that you get back LESS money than you started with.

If you’re pulling your money out of Hong Kong now, where are you going to put it? Why here, of course! (And yes, they ARE pulling their money out of Hong Kong. Capital flight out of Hong Kong is probably one of the reasons China has been reticent about interfering there although China’s patience appears to be running out.)

While economies overseas are having problems, are there ANY signs that the US economy is contracting?

By definition, a “recession” is two consecutive quarters of negative GDP growth.  So, for a recession is imminent, you need to have one quarter of negative GDP growth right.

First Quarter GDP growth was 3.1%. [Beating all expectations].

Second Quarter GDP growth was 2.1%. [Again, beating all expectations].

So, it hasn’t happened yet and there is no economist who is predicting a negative GDP growth for the third quarter.

 

If a recession were imminent, would employers be hiring people or laying people off?  Would businesses be buying assets and investing in capital improvements or would they be selling off assets?  Wages would be rising or dropping?

Are any negative things happening in the US economy?

The July jobs report showed 164,000 jobs ADDED.  It showed 363,000 people moved from part-time employment to full-time employment.

Current blue-collar wage growth is in excess of 3.4%, and current overall U.S. worker income is growing at a rate exceeding 5.4%.  Such numbers were unheard of over the last few decades.  This is especially true in the face of unusually low inflation (1.4%).

Hat Tip…CTH

Every store you walk into has Help Wanted or Now Hiring Full Time signs on the doors or at the entry. It’s odd when you see a store without those signs. Also non-retail businesses are putting ‘We’re Hiring’ banners on the outside of their buildings and along the roadways to get the attention of people driving by.  In some industries, notably trucking, they are paying hiring bonuses to get people with CDL’s.

Does this sound like an economy that is in trouble?

Keep in mind that the US consumes more than 80% of what it produces. The US economy is not export driven like China (manufacturing contracting) and Germany (economy contracting).

So why would the financial “experts” in the MSM led by CNN be clamoring for a recession?  I think most of us here know the answer to that question.

There are trillions of dollars at stake.  If PDJT is successful at restructuring the global trade to one that is a level playing field, the middle class in America will benefit and global multi-nationals will not make as much money.  The poor in America and around the world will benefit from an increasing standard of living resulting from improving wages.  The multi-nationals not so much.

The engine for the U.S. economy is the U.S. consumer.  The goal for Wall St. and the multi-nationals is to erode consumer confidence.  If they are successful at instilling fear in Americans, they can create a recession. They hope that, in so doing, they can get PDJT out in 2020.

Multiple, gargantuan and seditious efforts to shame and remove PDJT from office have failed spectacularly.  There has been significant blow-back on the Democrats.  This blow-back appears destined to get worse.  This appears to be a change in tactics.  They hope to be able to say that MAGAnomics is a failure. This is a battle between Wall St. and Main St.

Remember, the truth is not a value to the left unless it advances their agenda.  The left wants to impose their ideology on everyone.  If creating a recession gains them power while ruining millions of lives in the process, it is no big deal to them. The people exist to give them power.

Oh, and, BTW, the same yield curve inverted nine months ago.  Predictions of recession were made then.  And the economy has kept chugging along.

MAGA!