Today's NYT article suggests apocalypse (very) soon:

...the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.

Do we really need to worry so much in the short term?

Figure 1: Ten year constant maturity Treasury yields (blue line), and observation for 11/19 (red square). NBER defined recessions shaded gray; assumes last recession ends June 2009. Source: St. Louis Fed FREDII and NBER.

Six years ago, Jeff Frankel and I examined the implications of the borrow-and-spend policies of the Bush Administration [PDF]. We estimated the following relationship:

(1) it long = 0.001 + 1 × πt + 0.077 E(dt+2) + 0.280 (yt-ytFE) + 0.005 it* - 0.574 intt

Adj.-R2 = 0.51, N=17, Smpl 1988-2004. i is the long term interest rate on ten year bonds, π is the y/y inflation rate, E(dt+2) is the two-year ahead expected debt-to-GDP ratio

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Despite What the News Tells You, Crude Oil Prices Set to Fall

by Sheena Martin, Contributing Editor Monday, November 23, 2009

Is the price of oil headed for $100 per barrel again?

Many say it is. But to be frank, the “fair price” is much lower than the current range of $75-$83 per barrel.

If you focus solely on the current fundamentals – supply, demand, refining margins, seasonality – crude prices should be at $65-$70 per barrel. And that’s why I believe the oil market is set for a sharp downturn within the next year.

But in today’s reality, no one particularly cares about the fundamentals of overwhelming supplies and feeble demand. Fact is, there is more oil than there is storage.

The latest report from the Department of Energy showed that U.S. crude oil inventories were nearly 6.5% higher

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In October, existing home sales rose by 10.1% and are now 23.5% above the year-ago rate. Sales were at a seasonally adjusted annual rate of 6.10 million, up from 5.54% in September and a 4.94 million pace a year ago. Existing single family home sales rose by 9.7% to a 5.33 million pace, while condo sales soared by 13.7% to a seasonally adjusted annual rate of 770,000. Sales have been greatly aided by the "first time" homebuyer tax credit, which while eventually extended and expanded, for most of the month looked like was about to expire. Thus, in October people were scrambling to try to get in under the wire. This is the fifth straight month that existing home sales have exceeded year-ago levels. Even more impressive is the fact that actual, non-seasonally adjusted sales actually were higher in October than they were in September. This is ...

Friday’s report from SIGTARP must be quite embarrassing for the U.S. Authorities, as well as for the nations financial industry. It reveals a complete lack of knowledge about the financial markets among the regulators and a complete lack of respect among the Wall Street bankers. The Special Inspector General, Neil Barofsky, says in the report that NY FED-chief failed to [...]

It’s a lot more action on Capital Hill than on Wall Street friday. The stock market slides in to a weak ending with a light headwind from the dollar, as the investors park their portfolios in safe havens. But in Washington it’s full storm around treasury secretary Timothy Geithner and his FED-friends, while senator Ted Kaufman [...]

This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• Jim Jubak (MSN Money): 3-step strategy for a twitchy market, November 19, 2009. Many investors are deeply suspicious of the 60% run-up in stocks this year and are itching to sell. But then what? Here’s how to take some gains now while setting up a profitable 2010.

• Randall Forsyth (Barron’s): Treasury yield plunge sends warning, November 20, 2009. Collapse in note yields suggests economic distress will keep Fed on hold well into 2010 or beyond.

• Gordon Chang (Forbes): When in doubt, blame Bernanke, November 19, 2009. According to Liu Mingkang, China’s chief bank regulator, low American interest rates and the falling dollar have “seriously affected global asset prices, fueled speculation in stock and property markets

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Chuck Butler, regular analyst at The Daily Reckoning, offers an analysis of why the ‘Audit the Fed’ amendment to a $200 billion deficit plan spooked the currencies markets this week.

Chuck Butler (The Daily Reckoning): As I checked the currencies throughout the day yesterday, I noticed that as the day went on, the non-dollar currencies were stronger, led by the Big Dog, euro (EUR)… But then late last night, and I mean late last night, I checked them, and those gains had been wiped out.

So, when I arrived here this morning, I had one thing on the top of my list of things to do, and that was to find out what happened… Come on, I said to myself, it had to be more than the “risk on, risk off” stuff that’s been hanging over the markets like the Sword of Damocles! But, when you

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Despite ballooning Fed reserves to bail out banks, money supply as measured by the growth in money supply with a zero maturity (notes and coins, check accounts, savings deposits and money-market accounts collectively) continues to slow.

The slowing growth is contra to what normally happens when the Fed lowers the Federal funds rate.

In real terms the growth rate is also slowing.

The slowing in MZM growth is a consequence of US banks’ tight lending standards. The trend is likely to continue until the banks relax these standards.

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This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• Ambrose Evans-Pritchard (Telegraph): Is $6,300 fair value for gold? November 19, 2009. The last parabolic spike in gold took off when central banks joined the fray in the 1970s, hoarding bullion with the same enthusiasm as gold bugs. Dylan Grice from Société Générale says it smells much the same today. He sees an eerie similarity between the decision of India’s central bank to buy half the IMF’s entire sale of gold, and the move by France’s central bank to start converting dollars into gold in 1965.

• Gregory Zuckerman (The Wall Street Journal): John Paulson making big new bet on gold, November 19, 2009. John Paulson, who scored about $20 billion of profits between 2007 and early

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Future voting members of the Fed’s policy setting committee waved off concerns regarding a declining dollar on Thursday, Nov. 19, suggesting that unless the decline becomes volatile or otherwise erratic, concerns about an inflationary impulse are unwarranted.

In commentary that seems to suggest the dollar’s decline may be a counterbalance to a historically undervalued renminbi (RMB). Dallas Fed President Richard Fisher told Market News International (MNSI) that the declining dollar value was simply one factor out of many the Fed used as an analytical input for its policy setting model.

Fisher told reporters that “a gradually depreciating dollar” would not necessarily add an “enormous inflation impulse”, and that the Fed’s answer to concerns over a weaker dollar was to pay attention to the dollar’s activity. Fisher also mentioned that there are “trade-offs” to be made between the strength of the dollar and deliberately low interest rates existing over a protracted

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