Image giving an economics undergraduate the following question: “Unemployment is high. Inflation is low. Borrowing costs are cheap. What should the government do?” and they responded “cut the short-term deficit immediately to show strength!” You’d have to give them a bad grade, right? But that’s what our government, Democrats and Republicans, are doing.
But there’s a theory that by cutting $39 billion from the government over the weekend and by Obama’s signaling that he is transitioning to tackling the long-term debt he will unleash the confidence of the private market. The Republican JEC did a study that proved this and everything; a study that had nothing to do with selectively picking countries that were already going strong and increasing exports and using aggressive monetary policy to grow the country to tackle the debt. By proving we are serious about the debt and doing painful short-term cuts confidence will come into the market and people will start hiring and growing the economy.
If so, the 10-year Treasury should be going gangbuster on the idea. How did it do today? Grabbing the CBOE Interest Rate 10-Year T-No (^TNX) (I want to see intra-day movement, so no FRED):
Huh. It didn’t really do anything. I wonder, what does this value look like on a longer timeframe?
Oh right, we already have record-low borrowing costs.