trinkets for the villagers, kowtowing to the gods

As the torches are put out across Massachusetts, the White House has responded in what is becoming a distressingly hack fashion, throwing a few tax cuts and other trinkets to the "middle class". While in the other room, the White House is doing all it can to show its subservience to the bond gods. They announced in favor of the commission to cut social security and they will freeze discretionary spending minus the military, as Mars, the god of war, still reigns even above our bond pantheon.

I've noted people should pay attention to PIMCO's Bill Gross, one of the largest bond dealers on the planet. In November, PIMCO sold $27 billion in Treasuries and in December unloaded $37 billion more. In his 2010 outlook, Mr. Gross wrote,

If, in 2009, PIMCO recommended shaking hands with the government, we now ponder "which" government, and caution the days of carefree check writing leading to debt issuance without limit or interest rate consequences maybe numbered for all countries.

Really Mr. Gross started vigorously shaking hands with the government in 2008, when in June, he schooled a bunch of money knuckleheads on how financial bailouts work. At that point, many on Wall Street rightly thought the government would come to the rescue of Fannie and Freddie. Many bought F & F equity, while Mr. Gross bought the then under priced bonds. When the rescue happened, equity was wiped out, the bonds brought to full value. That's why Mr. Gross gets the big bucks. But now, Mr. Gross has in actions and words made clear the handshaking with the US government needs to be released. His February Outlook puts the US economy, because of the deficit, on the not getting out of bed anytime soon list. In short, Mr. Gross and no doubt the rest of the bond market are sending strong signals to their servants in government, the spending must end. The White House, as they seem genetically programmed, are responding in a hack way.

Now, what Mr. Gross hints around at, but doesn't really connect the dots, is that the major factor in the rise in government debt over the past eighteen months has been the bailouts of Wall Street and the banks. John Hussman, in an excellent piece, puts the transference of private loss to the public books through the Fed, Treasury, Fannie and Freddie et al in the range of $3.6 trillion dollars, which would go a long way to balancing the government books. But that's for you villagers to worry about, while our bond lords make sure, as it seems is there prerogative, they incur no losses.

After a year, it's pretty obvious Mr. Obama hasn't a reforming bone in his body. The only remaining question is if this White House has any more than hack political instincts, as it seems fast careening into irrelevance, or at least as irrelevant as a President can be, hoping the great gods of the business cycle will make things look not so bad by 2012. Make no mistake, this isn't 1993, 1981, or 1933 for that matter, it's 2010 and our political economy is more dysfunctional than at any point in our history. But that puts matters exactly where they should be, squarely on the backs of the American people. What are you going to do?