Mish's Global Economic Trend Analysis

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Trends in Interest Rates on National Debt Suggest Currency Crisis is Coming Posted: 23 Aug 2012 10:40 AM PDT Here are a couple of charts from Tim Wallace regarding interest on the national debt. The first chart shows the interest rate is falling as debt skyrockets. Interest Rates vs. National Debt click on any chart for sharper image Key Questions How long can the trend last? How low will the rate go? I do not know the answers to those questions, nor does anyone else. However, a rise in interest rates would cause a shocking increase in interest on the national debt. Interest on National Debt at Current Rate vs. Historical Average Should interest rates rise to the long-term average, interest on the national debt would more than double from the 2011 figure of $454 billion dollars. Here is a chart from the National Debt Clock site. The site notes "Maturity of U.S. debt ranges from less than a year to over 20 years, with the average maturity about 3 years. More than half of the debt, however, is short term, maturing in less than a year." That is an interesting assertion short-term debt is at .09%, 10-year notes yield 1.67%, and the 30-year bond yields a mere 2.79%. However, interest is on outstanding securities. A bond with a 6% yield maintains that yield until maturity. The average yield in Wallace's charts paid comes from Treasury Direct. Currency Crisis Coming If you get the idea a crisis of some sort is coming, fueled by out-of-control deficit spending as well as the Fed's ridiculous "Operation Twist Policy", then you get the right idea. The Fed ought to be selling long-term bonds at these rates, locking in financing at attractive rates, not buying those bonds hoping to drive yields still lower. Of course, that latter statement assumes there should be a Fed or deficit spending in the first place, neither of which I believe. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Eurozone PMI Declines 7th Month; German Private Sector Output Falls at Faster Rate; New Business Declines 13th Month Posted: 23 Aug 2012 08:52 AM PDT As easily predicted, at least in this corner, the Markit Flash Eurozone PMI® shows Downturn in Eurozone economy extends into seventh month. Key Points Flash Eurozone PMI Composite Output Index(1) at 46.6 (46.5 in July). Seventh straight contraction. lash Eurozone Services PMI Activity Index(2) at 47.5 (47.9 in July). Two-month low. Flash Eurozone Manufacturing PMI(3) at 45.3 (44.0 in July). Four-month high. Flash Eurozone Manufacturing PMI Output Index(4) at 44.6 (43.4 in July). Two-month high. The Markit Flash Eurozone PMI® Composite Output Index – based on around 85% of usual monthly replies – was broadly unchanged at 46.6 in August, from a final reading of 46.5 in July. The index has now signalled a contraction of the Eurozone private sector for seven successive months. The decline in total activity was widespread across the currency union. Flash readings for France and Germany pointed to contractions, with the rate of decline easing in France but gathering pace in Germany. There was also a further marked decline in output outside of the big-two economies. The latest decline in overall output mainly reflected a further marked drop in new orders. Incoming new business fell for the thirteenth consecutive month, although the rate of contraction was less sharp than July (which was the steepest for over three years). Rates of decline slowed at both manufacturers and service providers. The export performance of manufacturers also remained in the doldrums during August. New export orders (including intra-Eurozone trade) declined for the fourteenth month running, with the rate of reduction the sharpest since last November. This reflected not only the ongoing weaknesses of the Eurozone market, but also a softer rate of global economic expansion. The ongoing downturn in the Eurozone economy filtered through to the labour market. Staffing levels declined for the eighth consecutive month, with payroll numbers cut at both manufacturers and service providers. Prevailing Amusement and Misguided Hope As is typical, comments from economists provide a source of entertainment. Commenting on the flash PMI data, Rob Dobson, Senior Economist at Markit said: "The August Markit Eurozone Flash PMI reinforces the prevailing view of the economy dropping back into recession during the third quarter of 2012. ... The real interest inevitably comes from the national breakdown. Hopes that German economic strength will aid recovery in the broader currency union were dealt a blow by its rate of economic contraction accelerating, and further signs that its export engine has slammed into reverse gear. France may be edging closer to stabilisation, while conditions outside of the big-two remain weak overall." Notice the silliness of the "prevailing view" the eurozone will "drop back into recession". The eurozone is without a doubt in a full blown recession. As called in this corner, it was foolish to believe Germany would not join the party. Moreover, talk that "France may be edging closer to stabilisation" is also nonsense as Hollande's policies will soon start to take a big toll on the French economy. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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