The US Treasury Yield Curves – Are the markets really that bothered?


Department of Treasury Seal (2895964373)
Image via Wikipedia

As a general introduction today we will look at two US Treasury Yield curves.  The first Yield curve in the Curve graphic 1 below is the 3 Month bills compared to the 10 Year bills over the last 5 years.

Yield Curve 1

In this table it is clear that the current 10 Year rate of 2.82% as of 29 July 2011, is still well below the 5 year average rate.  The trend of the 3 Month bills, especially over the last few months has drifted aimlessly between 0.15% on 28 February 2011 and currently at 0.10% on 29 July 2011.  There is in fact no noticeable concern in the Bond / Capital market over the potential technical US Treasury default on 2 August 2011.

The second curve below in Curve graphic 2 illustrates this fact of the 3 Month bills trend since 28 February 2011 to 29 July 2011.  As can be observed, in the last few days a very slight spike has been observed, yet the rate at 0.10% is still below the 0.15% rate of 28 February 2011.

Yield Curve 2

In real monetary terms it is costing 5 Year Treasury bill holders (0.72%) (Yes a negative return of 0.72% currently to buy 5 Year Treasuries.  (See US Treasury web site)

It will be interesting to observe and track the trends over the coming days, especially as we kick off August and Debt Ceiling D-Day in the US congress and Senate.

theMarketSoul ©2011

Source Material:  US Treasury web site:

The Elusive “G” Factor – Part 1

[Economics in a Nutshell]


An Introduction

There is a conundrum here somewhere!  As a libertarian leaning Think Tank organization and publication, we instinctively know that more government interference in the economy and bigger government per se is not a good thing.  And so is sovereign debt and the servicing of that debt.  Both are drains on the economy and economic potential of any sovereign nation, yet both are necessary evils too.

But where lies the ‘sweet spot’ between the size of government, fiscal policy, sovereign debt (if necessary)?  The magic formula or ratio between the public and private sectors and their respective shares of the economic output pie?

These are questions the political and business leaders are struggling to understand and define in Europe and the USA at this point in time in order slowly and arduously drag their economies back to a ‘normal growth cycle’.

Economy (Photo credit: Donald Macleod)

Part of the challenge we believe is the massive imbalance created by the shifting nature and sources of production, combined with the rapid uptake of technology and the disruptive influences of technology.  Our planning cycles and hence levels of understanding and ability to adjust the factors of productions to keep up with these disruptive forces are being severely challenged.  Or maybe our grasp of the theory underpinning our economic models just aren’t up to coping with the rapid nature of change and forces of change in the global economy.

As has been argued in previous articles, by its very nature the instruments we utilise to adjust economic activity and output in specific geographical locations, namely fiscal (tax) and monetary policy, are very blunt instruments and not as effective and able to cope with the speed of change in given economies.  But are their any other mechanisms we can utilise to adjust unfavourable behaviours and activities in order to get back to equilibrium?

A further factor we believe is a lack of understanding of where exactly we are in the global economic adjustment life-cycle.  There is no real comprehensive understanding and agreement at best of these influences.  True mechanisms like the G8 now G20 have been created to address more global challenges, but there is hardly ever consensus and a collective will to act in unison to address the bottlenecks and imbalances in global economic activities.

With this introductory article we have laid out some of the areas to explore and bring back into the ‘light of scrutiny’ as part of a deeper understanding of the nature of our global economic state and status.

theMarketSoul © 2011

Economy (Photo credit: John H McCarthy)

The Great Money Deception – Part I

We will interrupt our series of articles on ‘The Trouble with Innovation’ and begin to weave in between those conversations, a more fundamental argument to help enlighten the debate and understanding around the differences between ‘Monetary Economics’ and ‘Real Economics’.

Economics for the twenty-first centuryThe basic themes of this series of articles will be around growth and shrinking in the economy, value and money measurements.

This will be a layman’s guide to understanding the differences and principles of Monetary Economics.  We realise that in casual conversations with finance and business professionals, there is a basic misunderstanding of what Monetary Economics is and how it impacts on the broader or ‘Real Economy’.

English: The Marriner S. Eccles Federal Reserv...
Image via Wikipedia

Our quick and ready definition of Monetary Economics is this:  Money and currency is only a temporary measure of value.

More sophisticated definitions include the Wikipedia definition as: “Monetary economics is a branch of economics that historically prefigured and remains integrally linked to macroeconomics.[1][2][3][4][5][6] It provides a framework for analyzing money in its functions as a medium of exchangestore of value, and unit of account.”

Image representing Wikipedia as depicted in Cr...
Image via CrunchBase

Another definition is:  “An economic theory, the proponents of which argue that economic variations, such as changes in prices and output, are primarily the result of changes in the money supply. (Thus, the Federal Reserve Board is the most important economic policymaker in the country.) Proponents of monetarism believe that changes in the money supply precede changes in other economic variables, including stock prices, and that a rational policy calls for moderate, steady increases in the money supply.” (See the link monetarism).

economics (Photo credit: Sean MacEntee)

Now we can get bogged down in definitions and we realise the dangers of always taking the top two or three definitions offered by Google search at face value.

An example of a textbook definition of monetarism is: “a range of views which emphasise the role of money in the operation of the economy system”.  At this point we need to mention that it is a contrast to Keynesian economics, which is being applied in various degrees in most Western governments at the moment, in order to support the Economic System as a whole.

However, Michael Foot, an ex Labour Opposition leader in 1983 made unhelpful comments such as: “monetarism is a worldwide disease” (The Economics of Taxation, Prentice Hall, 7th Edition, we linked to the 9th Edition).

Turning to an analysis of the Wikipedia definition we focus on the key phrases of ‘measure of value’, ‘store of value’ and ‘unit of account’.

Nowhere in this definition does it mention measurement of output or production, the key building block of the real economy.

Therefore, we conclude this first introductory article by making the clear distinction between money as a measurement tool and unit of account and real output or production being the building blocks of economic activity.

In the next instalment of this article we will define output, activity and production and then start making the stark contrasts between what monetary and real economics really are.

Let’s get the basics of economic language right and move on towards a better appreciation and understanding of the intricacies and interplays of economic discourse and activity.

theMarketSoul ©2010