How odd is that? Even with the acknowledgment that the US has officially hit its debt limit, 10-year US Treasuries hit 3.11% yield today (5/17/2011), down 32 basis points from the Friday before (4/15/2011) the S&P issued its warning, and down 12 basis points since Pimco announced additional bets against US debt (5/10/2011), with expectations of high inflation.
So why is this? Probably because confidence runs high that the US will continue to pay interest on bonds to avoid a true default, forcing the US government to cut spending elsewhere, including a partial shutdown or immediate furlough Mondays and Fridays. Or at least, if doubt begins to creep in, the US Treasury can make an explicit statement in support of continued interest payments.
Which explains why John Boehner is willing to make intractable requirements that Democrats agree to cuts equal to or more than any debt ceiling increase, dollar for dollar. He really wants the US to hit its absolute spending limits to enable their minority position (just majority hold of the House) of fixed spending limits to hit under Democrats, to exact a calculated political repercussion for the 2012 election. Or I should say, I doubt Republicans actually believe public spending is crowding out private, because interest rates and inflation are low and median wages remain flat, disproving their rhetoric.
I mean really, do Republicans actually believe in their grand theory of economic relativity, that cutting government spending will cure all ills, even if some of those symptoms are contraindications?
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