Push2Talk

Seems rates keep getting pushed down, while the market is wondering : "Why lend money to the United States?"

Pimco, the largest Bond Fund in the world, founder Bill Gross states the following at http://online.wsj.com/article/SB10001424052748703940904575395010745696880.html

Pimco's Gross: Better Uses for Government Spending

By MATT JARZEMSKY

Government spending that seeks to artificially boost consumer spending "can be compared to flushing money down an economic toilet" and will be hampered by demographic trends, said famed bond-fund manager Bill Gross.

Mr. Gross, in his monthly missive on the website of Pacific Investment Management Co., a unit of Allianz SE, argued that governments instead should focus on improving infrastructure, clean energy and education as well as creating less costly health care.

"Capitalism depends upon final demand and that if there ever comes a time when population growth slows, then the world's most efficient economic system will be tested," he wrote.

He warned that the current pace of 1.15% annual global population growth is slowing, and referenced modern-day Japan and the U.S. and Europe in the 1930s as examples of slowing population coinciding with a economic downturn.

A mix of fewer new consumers in terms of total population, and a growing number of older ones who don't spend as much money as new consumers will slow economic growth more than otherwise, he said.

Mr. Gross said decelerating population growth since the 1970s likely was a key factor in the leveraging of the developed world's financial systems and the ballooning of total government and private debt as a percentage of gross domestic product. "Lacking an accelerating population base, all developed countries promoted the financing of more and more consumption per capita in order to maintain existing GDP growth rates," he added.

Deficit spending that seeks to maintain an artificially high level of consumer spending should be replaced by other efforts aimed at structural change, he said. Governments that do otherwise will be left "waiting for the flush, with very little success," he said, referring to an automatic toilet whose eye fails to recognize the user has finished and gotten up.

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My thoughts are, as people are aging they are getting out of riskier asset classes and pushing into the one thing they think is a sure thing, US Treasuries. What this is doing is giving the current generation some breathing room to keep the dollar stronger.. but anyone who has some sense is looking at this no-yield area and asking.. WHY?

Talk of coupon clipping and corporates, especially foreign currency prices coupons are attractive in yield AND balance sheet position. Canada, Latina America, Asia.. all these countries do not have the debt overhang that the US, Japan, and UK have. When this bubble of bubbles rolls over, I do NOT want to be in it's wake.

Question is just.. when will the market tune in to the lack of yield on treasuries in the US.