"The Fiscal Cliff" Really???

[kandrathe]

Could you justify the statement "we have nothing left to spend"? Preferably in some way coherent with US bond yields being at historical lows?

Multiple factors explain the low yield;

A) Boomers retired and retiring will still see T-bills as safer than other investment vehicles, especially in shorter terms. Ergo, demand is high. People are willing to let the government use their money for this low yield.

B) The shell game. As long as the US borrows in its own currency, which can be created at will, the market isn’t going to assign any kind of credit risk to US debt.

C) At 1.66% yield per annum over ten years is better than the BEST savings account rates of 0.9% interest per annum. My bank is offering 0.3% for a premier account. Why are bank savings rates so low?

So, to correct my statement. "we have nothing left to spend", which is technically wrong. We can spend the fiat money we create out of thin air. We have had a small recovery over the summer, however I fear that time is over. Europe is weak. China's economy is crashing (if you call going from 16% to 6% GDP growth crashing). Our recovery has been buoyed by bubble re-inflation, bailouts, and debt write offs. The last 4 years have been an exercise in everyone cleaning up after the economic storm of 2008 destroyed the capital and equity infrastructure. Here is a article on the results of a shocking study by the Federal reserve. "The stunning drop in median net worth -- from $126,400 in 2007 to $77,300 in 2010 -- indicates that the recession wiped away 18 years of savings and investment by families."

To re-iterate what I've said often; Public investments that result in future job-growth and productivity are justifiable as long as the return on those investments result in a properly educated and useful labor pool, or a reliable and efficient national infrastructure. This will enable us to increase the GDP, producing more and better goods and services with our smaller work force and fewer precious resources (like energy).

And, then this is where I get more utilitarian and harsh. Everything else we spend is suspect if it does not promote the general welfare of the nation as a whole. So, while we expect to keep people from dying in gutters from disease or starvation, we shouldn't expect to make everyone "happy". We need to dial our spending on entitlements down to what people "need", and not as it's been, making them "comfortable". We individually pursue happiness. It is not given to us.