"...an inverted yield curve wrecks the market structure of time.It rewards pursuit of the sparrow at hand greater than two future sparrows.That is, the short-term bondholder is compensated more than the long-term bondholder.That is, the short-term bondholder is paid momore to sacrifice less… and the long-term bondholder paid less to sacrifice more.That is, something is dreadfully off.
Inverted yield curves precede recessions nearly as reliably as days precede nights, horses precede carts… lies precede elections.Today the 2-year Treasury note yields 4.79%. The 10-year Treasury note yields 4.37%.That is, the yield curve is inverted. It Gets Worse Some market crystal gazers believe the gap between the 3-month Treasury bill and the 10-year Treasury note puts out a greater recessionary signal.The 3-month Treasury bill currently yields 5.45%. Again, the 10-year Treasury note yields. 4.37%.Here — again — the yield curve inverts.The 10-year Treasury yield has dropped beneath the 3-month Treasury yield on six occasions spanning over 50 years. Recession was the invariable consequence — a perfect 1.000 batter’s average. History reveals the catastrophic effects of an inverted yield curve only manifest an average 18 months post-onset.The 2-year/10-year yield curve inverted 22 months in the past.The 3-month/10-year yield curve inverted 19 months in the past. In words that are other, recession is overdue.Might the ocean waves of recent government spending have postponed the scheduling? We concede the possibility that they have. Government spending can put on a gaudy short-term show.Yet at what price? A heavy long-term price is the answer. It’s a Ponzi Scheme Mr. Michael Lebovitz of Real Investment Advice:The repercussions of relying on stimulus for economic growth and growing debt faster than the ability to pay for it have significant economic consequences. The recent surge in debt will only further handicap our economy and prosperity in the future…Growing debt faster than one’s income is a Ponzi scheme. No matter how politicians sugarcoat fiscal stimulus, there are no two ways around such a characterization. Individuals and corporations that run such a scheme ultimately end up bankrupt. The same holds for governments, but they tend to have much longer runways…Not only is the growing ratio of debt to income problematic, but it is also a sure sign that the debt in aggregate is used for unproductive purposes. In other words, the debt costs more than the financial benefits it provides. If it were productive debt, income or GDP would rise more than the debt. In the long run, unproductive debt reduces a nation’s productivity, aka economic potential.
