Ghost of a flea

Ah, supply and demand, one of the myriad simple economic laws that for some reason appear to exist beyond the grasp of an Obama administration chock full of Harvard graduates and Nobel laureates: When supply outstrips demand, prices fall. The burgeoning surfeit of Treasury securities is beginning to overwhelm the demand for them, so the price goes down and the yield rises. This will make it even more expensive, of course, to kite this bacchanalia of government growth, influence, and power over its citizens. So investors shun and abandon long-term paper, with its open-ended inflation exposure, and seek safe haven in short-term securities. That’s how the yield curve steepens.

Edmund Burke is suppose to have coined the term Fourth Estate, referring to the print media of his era. The emergence of electronic broadcasting earned it, in some quarters, the title of the Fifth Estate, which was also a long running investigative program on CBC. The modern welfare state, avaricious in its demands, often exceeds the tax base of its citizenry. To make up for the shortfall the state turns to global capital markets and the printing press. Memories of Stagflation are still fresh enough to make inflating away the fiscal crisis, in effect a form of taxation, a unpalatable first choice. When President Clinton attempted to spend his way out of the recession of the early 1990s, he was rewarded with a Republican Congress and rapidly increasing yields on government securities. The global bond market balked as his spendthrift ways and earned the sobriquet of "bond market vigilantes." They seem to be repeating the trick today. Acting like a Sixth Estate of government, checking the fiscal recklessness of the legislative and executive branches. As President Obama finds it more and more difficult to finance his massive government expansion, he will be forced to abandon his plans - unlikely - or resort to monetizing the deficit. Getting yourself into bricks and mortar right now would be a good idea.