Economics, as academics, breaks down to psychology and social psychology. Micro-econ considers what the individual might do in any given market scenario. Take a hundred million or so individuals and now you’re into macro-econ. It’s the difference between one person making a decision based on his or her hopes and fears, and a whole bunch of folk caught up in mob mentality.
For all who do not know, among the ways the federal government raises money is to print paper; T-notes and T-bonds being those of primary concern here. Both are “securities,” which means they can be, and are, traded on the market. Both are traded at discount; a sum that is less than their face/redemption value. T-notes have maturities that are not less than one year, nor greater than 10, and are issued in denominations beginning at $1,000.00. T-bonds, on the other hand, are sold in denominations beginning at $1,000, have maturities greater than 10 years, and pay a stated coupon (interest) rate semiannually.
Today’s 10-year note sold at a yield of 4.19%. Today’s 30-year bond moved at 4.61%.
Remember Monty Hall’s Let’s Make a Deal? “Carol Thomas, c’mon down!” And Carol, dressed in a bibulous tomato costume, smiled wildly as Monty fetched a wad of rolled 20’s from his pocket, then rifled off one at a time into Carols palm until he reached ten. “Now Carol, you can keep what you have, $100, or trade that $200 for what’s behind Door Number 1. What do you want to do?”
Well $200, even in the 1960s, wasn’t a ton of money, and although Door Number 1 might contain Jay riding the back of a hog, it might just as easily feature Jay sitting in a brand new car. What would you do, keep the dough, or make a trade?
Essentially that’s the decision the holders of America’s $9.5 trillion worth of nation debt face each and every day: hold on to the relatively low yield, but supposedly highly secure, paper, or trade it. As the value of the dollar falls and our debt rises, the decision becomes easier and easier for those holding the debt and more and more dangerous for Americans when the paper is sold and the proceeds reinvested in other American securities; the stock of American corporations. (Remember, we are not talking of a few hundred or a few thousand shares either.)
As in every lending decision, whether to an individual or a country, the first concern is to the likelihood of a full return of the principle. The way the US has been heading — a dollar falling against other currencies renders the yield less and less valuable, while the surging national debt brings into play the anxiety of ultimate payback — is increasingly leading more and more countries to divest themselves of that paper and to invest the proceeds in our private corporations more and more.
Again, what would you do?
Gotta do something with the paper.
Pause for just one moment. Remember when Ronald Reagan quipped that the nine most terrifying words were “I’m from the government and I’m here to help”? (Actually, it was ten words, “I’m” being a contraction of I am, but nine has an easier and more resonating ring to it.) The sound-bite was a dual snare: as code to let the bigots in the South know the candidate understood them, and to let everyone know how he felt about gov’mint regulation; backed solidly when he iterated the need to get “the government off the backs of American free enterprise.”
A slap shot to the far left: overregulation by the government is just as deadly as the slap shot to the far right: under-regulation is also highly deadly. As George Bush’s presidency has made clear, incompetence and malevolence are not limited to government managers. Indeed, however we’ve managed to forget the massive travail visited on us by Charles Keating, Ivan Boesky and Michael Milken and the billions and billions of taxpayer dollars needed to bail out the S & Ls during Reagan’s tenure I will never understand.
Under Bush, under-regulation has become an overarching understatement; it’s been Halliburton and Tyco and Kenny Boy and Enron, and, and “Burn baby, BURN!” by the Enron manipulators, all googly-eyed at the sight of an ablaze California that would enable them to manipulate the power grid whichever way would send millions and millions into their coffers.
A wholly unregulated market is self-correcting to a country exactly the way cancer is self-correcting to the patient.
Ya know, it isn’t necessary to shout something directly for the message to be heard loud and clear. You’re a Saudi or you’re China or Mexico or Venezuela, and you’re sitting down with an American negotiator. Your smile is friendly, and your tone is quite subdued. “Mr. American, I really understand your predicament. I really do. And I’d really like to help you out. But you know, I’m carrying an awful lot of your paper right now, and, what, with your currency falling and . . . the level of your debt. You know, I’m getting all kinds of pressure from my government, and here’s what they’re insisting on: .”
Chrysler sold Chrysler to Daimler-Benz, a German company. Not long ago Daimler-Benz sold Chrysler to an investment group. Who? Who knows? The Indiana Toll Road, otherwise and heretofore known as US Interstate 80/90, was leased for 75 years to a Spanish-Australian consortium last year. So many of our companies and so much of our infrastructure are being sold to foreigners that even what’s here in America is no longer anything American; airports, rail lines, seaports, utilities, vertically-integrated (the field to the solo to the processing plant) corporate farms and food producers, banks, insurance companies, coal mines, oil and gas companies, communications and entertainment media, steel manufacturing, tire manufacturing, grocery chains, department stores.
The list is as endless as your imagination. It even includes a goodly — Oops! A very poor adverb choice — portion of our military equipment manufacturing.