Deficits and Interest rates

Go figure: Deficits matter:

" . . . [T]he nation’s budget deficit is a cinch to go from merely staggering to positively stupendous. At the risk of being economically unchic, we own up to an anachronistic belief that deficits do matter. And that,
further, their impact is destined to be felt with conceivably
incalculable consequences by a financial system that’s already
dangerously stressed, as this one is, with huge shortfalls in our
accounts at home and abroad and a savings rate that’s hovering between
zero and zip.
"

That quote was from Barron’s Alan Abelson, who believes that not only do deficits matter (duh), but enormous deficits will make interests rates rise:

"Money to rebuild what Katrina destroyed will have to come from somewhere . . . which portends a huge surge of borrowing. That, in turn, means the supply of Treasuries will balloon, joining the heavy flow of bond sales from the portfolios of insurance companies rushing to raise cash to meet the torrent of claims in Katrina’s wake. Which likely spells higher interest rates and all the bad things that may issue from them in an economy so lopsidedly dependent on a housing boom created and sustained by cheap money. A prospect, we might note, that has helped send gold, that indefatigable anticipator of woe, to its highest price since 1988."

Well, rates may be going up, but at least we know that ex-inflation, we have no inflation.

Hmmm, that gives me an idea:  We should start reporting the budget deficit, ex-revenue shortfall. Then interest rates (Ex- any rise) will stay low!

Hey, this economic planning thing may be easier than you first thought . . .

Source:
Big Repair Job
UP AND DOWN WALL STREET 
ALAN ABELSON
Barron’s, MONDAY, SEPTEMBER 19, 2005      
http://online.barrons.com/article/SB112690872222043560.html

Category: Economy, Fixed Income/Interest Rates

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Category: Commodities, Economy

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Category: Commodities, Economy, Fixed Income/Interest Rates

Except for Inflation, there’s no Inflation

So let me make sure I completely understand this: If we back out all of the inflationary data from the CPI, and PPI, there is, um, no inflation? 

Thanks for clarifying that.

While the Dismal Set — and the majority of CNBC guests — continue to spout such foolish nonsense, its nice to see that at least the WSJ wasn’t bamboozeled. Their online headline read:  Consumer Prices Climb 0.5%

"Gasoline prices shot up 8.3%, the biggest increase since February 2003.
Food prices, however, were unchanged for the first time in nine months.
Medical-care prices were unchanged after nearly 30 years of increases.
Housing prices grew more slowly in August, falling to a 0.2% rate from
0.4% in July. Automobile prices fell 0.5%, half the rate of decline
recorded in July."

You can see more from the dismal set below . . .


UPDATE I: September 16, 2005 10:54 am

Its the ultimate Hedonic adjustment:  Chart of the Day shows us graphically that without the items that are going up in price, there is hardly any inflation at all! 

Core_inflation



UPDATE II: September 17, 2005 11:54 am

The first official chart from the weekend WSJ:

Inflation


UPDATE III: September 24, 2005 2:54 pm

Here’s a round up of all our recent discussions on inflation

Sources:
Consumer Prices Climb 0.5%
Katrina Helps Propel Jobless Claims
To Highest Level in Nearly 10 Years
WALL STREET JOURNAL, September 15, 2005 5:44 p.m.
http://online.wsj.com/article/0,,SB112678676740241720,00.html

Read More

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