Flat Yield Curve & Reflation

There is no bond conundrum. The ample credit supply from Asia on the finance side, and injurious Asian job outsourcing on the tangible side, these have combined to render the US Treasury Yield Curve (TYC) as flat as a buttermilk pancake. Wages have therefore failed to participate in the recovery, with little wonder why. Actual job growth occurs in Asia, while Birth-Death job statistics enter the ledger in the USEconomy. If not for the B-D additions to the job count, the official job growth would have been negative in both May and June. Creeping poverty outside of home equity is the stark painful reality which confirms the flat TYC.

There is no bond conundrum. The US Federal Reserve reflation initiative, begun in 2001 when interest rates were yanked hard down to 1%, is a grand failure. In the 1970 decade, wages rose easy as pie, 10% here, 12% there, performance notwithstanding. Everybody except those stuck in industries undercut by foreign government subsidies (e.g. steel) received nice hikes in pay checks. Nowadays, with China & India in the picture, grants for 10% pay hikes are as rare as wavy shocks of hair on Greenspan's dome. Most people are expected to work harder, manage more people, balance more projects, and to be grateful for the job with flimsy pay raises. The absence of a steep TYC is the stark painful reality which contradicts claims of a robust USEconomy.

There is no bond conundrum. Every chapter in economic mythology requires nonsensical cloud cover for its lies. The intercontinental macro economy, noted by its flexible credit system and low-cost factory solutions, stands as the latest legend wrapped in heretical economic dogma. We see one mythology chapter per decade, so it seems, each accepted like a hungry dog lapping up a sawdust stew, empty of calories. Asia is in revolt, holding scads of USTBond paper. The USDollar reserve currency status is under siege, bloated beyond value. Asians and even Persian Gulf nations are buying gold with diverted oil revenues. The Petro-Dollar is shaky in its foundation. Flexibility turns out to be bound by breakable rubber bands. The global insurrection against the USDollar standard is the stark painful reality which pokes broad holes in the groundless Macro Economy myth.

There is no bond conundrum. The performance of the USEconomy has been reported with utter lies and distortion for over a decade. Not a single major important economic statistic has been spared from corruption, in tragic reflection of the regular scandals on Wall Street. We have no reluctance in easily conclusions, to admit the gross under-statement of price inflation on the CPI political shuttle of false information. However, we somehow find plausible the gross over-statement of economic growth on the GDP political shuttle of false information. The growth lie is swallowed whole even by the gold community. The true price inflation rate is in the 6% to 8% range. The true GDP growth rate is in the 0% to 1% range, maybe even negative. Most claimed economic growth is improperly adjusted price inflation. The USEconomy is growing only from inflation. Strip out a minimized falsified portion, which we all admit recognition for, and what remains is called robust economic growth? Rubbish. The absence of inflation adjusted economic growth (i.e. 0% GDP) is the stark painful reality which confirms the flat Treasury Yield Curve.

This point must be made repeatedly. The graph below points out the distortion on CPI, reported too low. That is the first shoe. The second shoe is that the GDP is exaggerated high by at least the same amount that the CPI is suppressed. Let's strain the imagery further. The CPI and GDP are two sides of the same lying coin of the realm. There is no robust USEconomy. There is only robust price inflation, aided by a falling USDollar and withering Petro-Dollar standard, which we falsely proclaim as growth. Notice how the Fed Funds target rate of 5.25% is almost 50 basis points higher than the 3-month TBill yield. The bond market already thinks the USFed has gone too far, and hiked too much.

Former Chairman Greenspan has dumped a mess on Bernanke's lap. Easy Al, the Maestro, the Wizard, Mister Magoo, he has left town. The flat Treasury Yield Curve is his report card. Through the proper lens, the report card bears a big fat "FAILURE" grade. It helps that the public is so badly educated on all matters economic. It helps that he received collusion and cooperation from Wall Street, which basically raided the middle class wealth, savings, and retirement plans. We are early in the hyper-inflation in the 2000 first decade. In the 1970 decade everything inflated - cost, wages, product prices, but not housing. Nowadays, the reflation scheme has backfired, thanks to China. The Middle Kingdom has awakened to impose a firm product price ceiling and wage ceiling upon the USEconomy, leaving only housing to inflate in price. Greenspan publicly stated his eagerness to confront and deal with a Kondratiev Winter. He got his chance. The downtrend in the USDollar since 2001 has combined with the renaissance of China. He will tell you he succeeded, only because we experienced no obvious recession. With statistical corruption, he evaded the reality of perhaps unending recession interrupted by stalls.

The tragic conclusion from my analysis is that the Treasury Yield Curve is flat because the Great Greenspan Gambit, his attempt to reflate the USEconomy after the 2000 stock bust, has failed miserably and unequivocally. The TYC is flat because …..

• THE USECONOMY IS EXPERIENCING HYPER-INFLATION IN COSTS
• RISING INTEREST RATES & FAST RISING COSTS ARE PROHIBITIVE TAXES
• THE USECONOMY IS STUCK IN A NEAR RELENTLESS STALL
• WAGES ARE NOT KEEPING PACE, AND CANNOT KEEP PACE

Accelerating credit is mandatory to maintain flat growth. With restrictions, the TYC will invert with a vengeance. This is the Weimar requirement, the Greenspasm reality.

THE HAT TRICK LETTER COMBINES MACRO ANALYSIS WITH INVESTMENTS.

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 24 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com. For personal questions about subscriptions, contact him at[email protected]