ECONOMIC GRIMNESS – AT 9:01 A.M. ET: There have been some very serious rumblings in the international economy over the last few days, and the media's concentration on events in Washington and in Wikiland have tended to downplay them. But this is serious. From London's Telegraph:
Agreement in Washington on a fresh fiscal package has set off dramatic rise in yields of US Treasuries and bonds across the world, threatening to short-circuit any benefits of stimulus. The bond rout raises concerns that the US authorities may be losing control over events...
...The Treasury sell-off has ricocheted through the global system, triggering bond sell-offs in Asia, Europe and Latin America. Japan's finance ministry braced as borrowing costs on seven-year debt jumped by a sixth in one trading session, while German Bunds punched through 3pc.
David Bloom, currency chief at HSBC, said it is hard to disentangle whether investors are shunning bonds because they expect US stimulus to boost growth next year, or whether they are losing patience with profligacy in Washington.
"If this is all about growth, that's brilliant. But if yields are rising because people think America's fiscal situation is unsustainable, then its armaggedon," he said.
"The US can get away with this only because it is the world's reserve currency. This would be totally unacceptable in any other country. We think these problems will start to crystallise for the US in the second half of 2011, once the European debt crisis has stabilised," he said.
Both Moody's and Fitch warned that the US must map out a credible strategy to control spending. "We have long-term concerns about the US rating outlook and they're not yet being addressed," said Stephen Hess, chief US analyst for Moody's.
COMMENT: Money bills originate in the House of Representatives, which will soon be controlled, heavily, by the Republicans. It's up to them to come up with a spending plan that will move domestic and foreign markets. If the GOP goes back to business as usual, and that has often been its history, it will fail, and Obama will use that failure to win reelection in 2012.
The loss of confidence in Washington is palpable throughout the world. We have never been in quite this situation, and it's starting to affect our influence in foreign policy. Other nations and blocs are increasingly ignoring us, and going their own way. And President Obama seems little inclined to do much about it.
December 9, 2010