Counterparties: The debt crisis we’re wasting

May 30, 2012

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US and German government debt, the WSJ reports, is now “trumping gold as a safe haven”. (Please update the contents of your Doomsday Bunker.)

In fact, today a host of government bond yields around the world approached new lows. Yields for 10-year Treasuries hit 1.625%, a new record. As Joe Weisenthal notes, German, British, Finish, Swedish, Australian and Canadian borrowing costs have never been lower. German two-year bond yields even hit zero.

As one analyst said:”This is fear.” Edward Harrison, for his part, warns that low rates could force the US into a Japanese-style state of “permanent zero” that punishes savers and hamstrings banks. And Matt Yglesias wonders: If inflation-adjusted interest rates on US debt are actually negative, why bother collecting taxes at all?

While the world is willing to lend to the US for next to nothing, it’s worth revisiting the last time 10-year Treasury yields hit 60-year lows. In September, as America was fresh off the debt ceiling debacle, Martin Wolf reminded us that the market was not particularly worried about deficits, at least not in the US, UK and Germany. (Ezra Klein had similar things to say in August.) The bond market, Wolf wrote, is “loudly saying” we should

use cheap funds to raise future wealth and so improve the fiscal position in the long run. It is inconceivable that creditworthy governments would be unable to earn a return well above their negligible costs of borrowing, by investing in physical and human assets, on their own or together with the private sector.

Translation: Never let another country’s debt crisis go to waste.

And on to today’s links:

New Normal
Americans are increasingly spending their “prime working years” not working – WashPost

EU Mess
Europe “effectively lending Greece money so Greece can repay the money it borrowed from them” – NYT
Greece’s energy options: Iran, Glencore or blackouts – FT Alphaville
European leaders propose a “banking union” – WSJ

Wonks
Federal lines of credit: Improving fiscal stimulus by extending credit directly to citizens – Miles Kimball

Mischaracterizations
Taleb: A breakup of the euro is “not a big deal,” will create “a lot of fun currencies” – Bloomberg
Taleb “massively angry” at Bloomberg for quoting him out of context – Business Insider

Facebook
Facebook and the sad case of ethical bankers – Bronte Capital
Investment banks’ function in an IPO is to equally satisfy or equally dissatisfy issues and investors – The Epicurean Dealmaker

Regulations
A better way to restrict leverage and make banks pay for their own resolution – Deus Ex Macchiato

American Decline
When biking to school is against school rules – Bicycling

Data Points
Kleiner Perkins’ 112-page report on the Internet trends of 2012 – KPCB

Interstellar Domination
The Rockefellers and the Rothschilds have formed a strategic partnership – FT

Reversals
Bit.ly isn’t really a link shortener anymore – The Atlantic Wire

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