EconomicCrisis.US

For the first time since the 1990s the U.S. 30-year Treasury bond is becoming the benchmark for the world’s biggest debt investors.

The Federal Reserve’s plan to buy $600 billion of U.S. government debt will focus about 86 percent of its purchases in notes due in 2.5 years to 10 years, leaving the so-called long bond as the security that most closely reflects market expectations for inflation. Since the Fed’s Nov. 3 announcement, the 30-year yield rose 0.28 percentage point, suggesting growing investor confidence in the central bank’s efforts to avoid deflation as the economy expands.
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Consumer and government spending gave a larger-than-expected boost to the economy during the third quarter, with the gross domestic product increasing at the fastest rate in almost four years, according to the U.S. Commerce Department.

The U.S. GDP — a measure of all goods and services — improved at a revised annualized rate of 2.5 percent, compared with the previous estimate of 2 percent. The federal government revises the GDP three times per quarter.

It’s a much-appreciated boost, but one that will likely not lead to a dramatic decline in the jobless rate or help greatly power the still-sputtering economy. Many experts say the economy needs to grow at a 3.5 percent-plus clip in order to lower the national 9.6 percent unemployment rate.
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Is the beast of deflation crouching outside our door? Could this be the real reason behind the Federal Reserve’s recent injection of $600 billion into the economy?

Despite the logic of much of the criticism being aimed at the Fed, it may be doing what it has to do to keep the country from spiraling down into a deeper recession. In the midst of what amounts to a virtual economic war with some of our trading partners, it’s important for us to understand exactly what is at risk and what the Fed is up to.
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Two years ago the U.S. economy was in the depths of one of the worst recessions in my lifetime. Financial markets were priced to the expectation that the economy was headed into a deep depression that would be far worse than anything ever seen before. At one point, corporate credit spreads and equities were priced to the belief that as many as half the companies in the U.S. would be bankrupt within 5 years or so. There were lots of forecasts of unemployment reaching as high as 25%. The bond market expected to see years of outright deflation. Financial markets all over the world we gripped by panic, and many thought we were on the verge of a global financial collapse. I hope I never have to live through anything like that again.
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