Kind of story of two halves of the week. In the first half, we had a couple of US debt auctions, at the shorter end, that went off pretty well. Perhaps because of a premonition that the consumer price index report would be favorable and it was. But as I keep pointing out, even when interest rates on newly issued debt seem better than expected, they are far higher than those rates were a couple of years ago and much higher than the rate on retired debt being rolled over.
And then reality hit in the second half of the week. The monthly report on what the Federal Government takes in and what it spends came out. We have an astounding deficit for supposedly having a robust economy. The June deficit was $66 billion and is $1.27 trillion year-to-date. We are heading for another $2 trillion added to our immense debt pile. And why do we have such a huge deficit? Because of that exploding debt and comparatively high interest rates. Interest expense in June was $140 billion; $868 billion fiscal year-to-date and likely to be $1.14 trillion for the full year. Interest expense is the single biggest item in our budget now and it is only going to grow. (ZH Post)
So it isn’t surprising that when the US Treasury tried to sell a new round of 30 year bonds, oops, the reception was incredibly poor. The relatively small face amount of $22 billion is much lower than the amount sold in the earlier auctions, so you would think it wouldn’t be hard to attract demand. It was. The rate paid, just over 4.4%, was significantly higher than expected, and the demand factors were significantly weaker. Personally, I wouldn’t buy long-term US debt at that rate, too much likelihood of inflation and too much risk. I keep saying this because I believe it is true, supply and demand factors are going to determine US debt rates, not whatever the Federal Reserve does. (ZH Post)
The auction may have been poor in part because buyers were anxious about the producer price index release, which came in higher than expected. These are the prices manufacturers and other businesses pay for the items and services they need to create their products. When those prices are higher, retail prices go higher too. So any notion that inflation is disappearing is very premature, it may actually be heading back up and when Bidementia can no longer empty out the strategic oil reserve and gas prices go up, it will be very apparent to consumers. All is not well in Bidenomics, in fact nothing is well. The economy is as loopy as he is. (ZH Post)
