Of Bubbles and Treasury Debt

Over the last decade our economy has been buffeted by what appears to be an accelerating series of economic bubbles. It is more than coincidence that this has occurred while government interference in the economy has increased.

That is not to deny that free markets are fully capable of producing economic bubbles, as market participants miscalculate investment risks and rewards and copy-cat each other as they do so. These market participants, however, if left to their own devices will also pay the price for their mistakes. Knowledge that they are at risk acts as a moderator and corrector, limiting the degree of risk investors are willing to take in the first place (and the willingness of lenders to provide money to support the bubble), and leaving the way clear for other investors to come in and pick up the debris (at a profit) when the bubble bursts.

When government is involved non-economic factors are inserted into the calculation of risk, and they affect who pays for the risk. With the existence of federally-supported mortgage guaranties, investors paid very little attention to whether mortgage lenders verified the ability of borrowers to make payments. A government guaranty always means that risks will be undervalued and that someone else (usually the taxpayer) gets to pick up the tab for the miscalculation.

It is neither exaggeration nor hyperbole to recognize that for more than a year the government has been handing out guaranties at a rate never before seen in the history of mankind. That is to say, that mountains of financial risk miscalculations have been made and are being made every day, and the unavoidable consequences are accumulating.

Perhaps the most dangerous miscalculations are those involving the debt issued by the U.S. Treasury. Investors are mistakenly acting as if there is no risk in placing their money in Treasury securities. These investors overlook the risk that buying Treasury securities--with an effective interest rate of 4 one-hundredths of one percent (the rate last week for 1-month Treasuries)--puts investors at risk if interest rates rise even a little bit and exposes the investors to even mild inflation.

Inflation is unlikely to remain mild. Along with all those government guaranties there has been a mountainous accumulation of new money provided by the federal government. All that money has to go somewhere. Right now it is awaiting some slight shock to send it avalanching down on the economy. Much of that money is for the moment being hoarded by investors and businesses afraid to spend it or put it to work while economic prospects remain unsettled and policymakers keep confusing the markets with one economic policy, regulation, restriction, or plan after another. No one wants to play the game while the referees are adjusting the rules.

So the government money makers keep pushing more money out to fund investment even while they toy with new disincentives to investment. People park the money instead in bank deposits (which are growing at record levels) and Treasuries (driving Treasury interest rates down to almost nothing).

That will not continue. At some point, the willingness of investors to hold dollars in accounts earning practically nothing will have played out. They will get their fill of Treasury securities. Foreign investors are already there, in recent weeks reducing their holdings of U.S. Treasury debt. Treasury interest rates will have to rise to attract investors, but as Treasury interest rates rise those who invested in Treasuries at very low interest rates will be on the losing side of their investment. They will start unloading their Treasury investments, further driving Treasury prices down and interest rates up, causing even more losses to those who invested in recent months in the Treasury bubble.

The spiral will be hard to stop, particularly as the Administration will be desperately trying to borrow more money, unheard of new amounts of money, to fund their planned multi-trillion dollar deficits. Interest rates will have to go up very high very fast in order to fund that voracious new appetite of the government for debt. The high interest rates will choke off many new sparks of economic recovery, leaving a lot of money around chasing after fewer goods and services for sale.

The Treasury bubble will likely end in a race that we have not seen for more than a quarter century. The race will be on for which will go higher, inflation or interest rates.

Of Life and Resurrection

Recently I had some quiet time to enjoy a beautiful day, the kind of day that makes Spring famous. As I sat on my backyard patio, the sun was bright, the temperature cool. There was a gentle breeze. The air was fresh and alive. The early Spring flowers were blooming, the daffodils and the jonquils.

In the neighborhood the cherry trees and pear trees were in full bloom. Almost all the other trees were budding with the tender Spring green of their new leaves. The mix of scents from the trees, plants, and grass was pleasant and lively. The grass was greening from the Winter brown. I could hear the sounds of the songbirds as they seemed to vie with each other for lead solo in the wildlife choir. All was pleasant, charming, lively, as I sat taking it in while munching on some strawberries.

I should hate to give it up—the whole experience, the sight, the sound, the smell, the taste, the touch, not just the strawberries.

We live in a very physical world. God intended it that way. God went to a lot of trouble to create a very physical world. He took great pains to make it beautiful and lovely. As the Lord revealed to Moses, “And out of the ground made I, the Lord God, to grow every tree, naturally, that is pleasant to the sight of man; and man could behold it. (Moses 3:9) . . . And I, God, saw everything that I had made, and behold, all things which I had made were very good” (Moses 2:31).

In the Doctrine and Covenants, Section 59, we read,

Yea, all things which come of the earth, in the season thereof, are made for the benefit and the use of man, both to please the eye and to gladden the heart;

Yea, for food and for raiment, for taste and for smell, to strengthen the body and to enliven the soul.

And it pleaseth God that he hath given all these things unto man; for unto this end were they made to be used. . . (Doctrine and Covenants 59:18-20).

I am reminded of a song that was sung at our wedding reception, sung by one of my wife's college friends. Written and made famous by John Denver, it is called “Annie’s Song,” and it says in part,

You fill up my senses
Like a night in the forest
Like the mountains in springtime
Like a walk in the rain
Like a storm in the desert
Like a sleepy blue ocean

The Lord meant to fill up our senses, and He called it very good.

Did God make all these things, all the beauties of this earth, to be used by us only for life’s short day, to be laid aside forever when our bodies are placed in the grave? Once we die, are our senses never to be filled again? Is John Denver never to sing again? Will Helen Keller never see a sunset or hear a waterfall? Will little children who die in their infancy never run in the grass?

Apparently so, were we to rely for our light upon the religions of man. In the teachings of the religions of the world, the things of this physical world are temporary at best, frauds, a distraction from reality. In not a few teachings, this physical world is the sign of evil itself, wherein all things embodied are evil, and life is a quest to cast aside all things material and physical. For in the teachings of the world, God Himself is supposed to be without body, parts, or passions, a great nothingness to which we should all aspire.

Alone and apart from the religions of men and of the world, The Church of Jesus Christ of Latter-day Saints proclaims that God was not lying when He declared that His creation and all things He made “were very good.” As members of the Church of Christ, we announce that all that God does is eternal.

It would seem odd, indeed, for God to spend so much time and effort to create the world and the worlds—and all of their details and beauties—if they were not very important. In fact, the Lord emphasized just how important the material world is when He explained in the Doctrine and Covenants something about Himself and physical elements. God declared that, “The elements are the tabernacle of God” (Doctrine and Covenants 93:35), something that young Joseph Smith saw for himself with his own eyes, when the Father and the Son appeared to him in that First Vision in 1820.

Through the Prophet Joseph Smith the Lord further revealed, “The elements are eternal, and spirit and element inseparably connected, receive a fulness of joy; and when separated, man cannot receive a fulness of joy.” (Doctrine and Covenants 93:33, 34) So it was that the Lord explained to Lehi, the prophet, “men are that they might have joy. And the Messiah cometh in the fulness of time, that he may redeem the children of men” (2 Nephi 2:25, 26).

It is true that we shall all die, that we shall not only be touched by death but shall experience it, personally. A couple of years ago my son and I drove by a cemetery with what seemed to me an unusual sight. Lined up along the back were dozens of burial vaults, all waiting for their occupants, some day, sooner or later. Not one of us knows who will be the next occupant, but we cannot deny that we all will go there. There’s a place for us. But it is not the final place.

Those of us who have placed a loved one in the tomb, and have faced this one of life’s most real experiences, know that as we have faced this experience with the bright testimony of the Savior’s resurrection, the sting of death is removed. The sadness is one of parting, not the hopeless despair of irretrievable loss. With the Apostle Paul, we proclaim, “O death, where is thy sting? O grave, where is thy victory? . . . Thanks be to God, which giveth us the victory through our Lord Jesus Christ.” (1 Corinthians 15:55, 57)

The resurrection and all the good things of life that come with it are real. It is death that is temporary and fleeting.

So, for baseball games and walks in the woods, for ice cream and for spaghetti, for flying through the air and swimming in the sea, for symphonies and chirping birds, for soft warm blankets and cool smooth silk, for fast cars and slow buggies, for fireworks and handshakes, for the scents of the sea and the perfumes of the gardens I thank the Risen Lord and praise my Savior, for making all of these available forever.

We sing praise with the hymnist, Folliott S. Pierpoint:

For the beauty of the earth,
For the beauty of the skies,
For the love which from our birth
Over and around us lies,

For the beauty of each hour
Of the day and of the night,
Hill and vale, and tree and flow’r,
Sun and moon, and stars of light,

For the joy of human love,
Brother, sister, parent, child,
Friends on earth, and friends above,
For all gentle thoughts and mild,

Lord of all, to thee we raise
This our hymn of grateful praise.
(Hymn 92)

To which I add my own witness of the Living Christ. I have stood in the tomb. It was empty, for Christ is risen, as He said. And all good things by and through Him are saved.