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Deficit hawks wrong

June 28, 2010

This is from a mortgage industry insiders-only daily email newsblast that I receive:

On to mundane things, like our economy. Friday we learned that GDP grew by 2.7% in the first quarter, less than previously reported. Conversely, the University of Michigan Consumer Sentiment increased to 76, the highest since January 2008, from 73.6 in May. After this news we had a nice rally (again) toward lower rates and investor price improvements. There is no Fed meeting in July, and the futures market is pricing in a 75% chance that the Fed keeps rates at .25% through November so don’t look for higher rates soon unless investors become nervous about the amount of debt in the US… Mortgage rates are low because investors, nervous about global economic stability and a volatile stock market are plowing their money into Treasury debt and mortgage securities, assets that investors perceive to be relatively safe bets.

Pay attention deficit hawks! The US is not losing it’s status as the world’s safest currency. Your G20 takeover and pledge to cut worldwide government deficits by 50% in three years are not the right path.

In the US nothing has essentially changed from 2 or 3 years ago: unemployment is still very high, the economy is limping very slowly toward a recovery by going two steps forward and one step back, the banks are still not lending to small business, consumers are still not spending at rates we need them to, and the housing market has not recovered. To all of those I add “yet”. See yesterday’s post – we cannot cut off the spigot of federal government stimulus spending just yet. Taper off, maybe. Shut off, no.

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