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Plunging Consumer Confidence and Treasury Yields, Economic Depression is Here

Economics / Great Depression II Jun 29, 2010 - 01:46 PM GMT

By: Mike_Shedlock

Economics

Best Financial Markets Analysis ArticleIs that a 3-handle I see on the long bond and a 2-handle of the 10-year treasury? Why yes it is.



Treasury Yields - Weekly Close


The week is not over yet but this looks rather ominous. Treasury yields are back where they were in April of 2009 at the start of the so-called "recovery".

I am not quite sure why the 3-month treasury displays as a flatline at .5. The flatline is closer to 0.

Consumer Sentiment Plunges

Inquiring minds note that the Consumer Conference Board Confidence Index Drops Sharply.

The Conference Board Consumer Confidence Index® which had been on the rise for three consecutive months, declined sharply in June. The Index now stands at 52.9 (1985=100), down from 62.7 in May. The Present Situation Index decreased to 25.5 from 29.8. The Expectations Index declined to 71.2 from 84.6 last month.

Those saying conditions are “good” decreased to 8.0 percent from 9.7 percent, while those saying business conditions are “bad” increased to 42.4 percent from 39.5 percent. Consumers’ assessment of the labor market was also less favorable. Those claiming jobs are “hard to get” increased to 44.8 percent from 43.9 percent, while those saying jobs are “plentiful” decreased to 4.3 percent from 4.6 percent.

Consumers’ short-term outlook, which had improved significantly last month, turned more pessimistic in June. Those anticipating an improvement in business conditions over the next six months decreased to 17.2 percent from 22.8 percent, while those expecting conditions will worsen rose to 14.9 percent from 11.9 percent.

An Economic Depression is Here

Either the present conditions are about to move back up or the expectations index is about to plunge as well. I expect the latter. Expectations for improvement are way too optimistic, not that a reading of 71 is optimistic at all. It isn't.

Structural problems are immense and the sad fact of the matter is those problems cannot be cured by more deficit spending. Krugman is correct about a depression, just wrong about the cure. Logically the disease and the cure cannot be the same.

By the way, a depression is not coming, we are clearly in one, a deflationary one at that. Once again, those chanting hyperinflation all missed the boat by light-years.

Various safety nets like food stamps, unemployment insurance, and of course people no longer paying their mortgage and living in their houses for free all mask over the depression.

Depression is The Price We Pay For Budgetary Murder and contrary to Krugman's belief, further budgetary murder cannot possibly cure anything.

Understanding The Problem

Before you can fix anything, you have to understand what the problem is and what caused it.

What causes depressions is an unsustainable runup in credit and debt that precedes it, NOT a failure to go deeper in debt.

Anyone who understands 5th grade math should be able to figure that out. Unfortunately, Nobel prize winning economists can't.

Congress, the Fed to Blame


In this case, a spendthrift Congress coupled with loose monetary policy at the Fed, effectively encouraged housing and other speculation. The depression we are in now is a result of massively failed policy. The same policy cannot possibly be the cure.

Give Congress the boot and vote in those against bank bailouts, Fannie Mae bailouts, excessive military spending the US simply cannot afford, and other free-lunch policies.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish 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 Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2010 Mike Shedlock, All Rights Reserved.


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