Love in the Air

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Yesterday morning, a red, heart-shaped balloon, with a message attached, breezed by our seventh-storey office window. Who had lost it? Whose heart would be broken when they didn’t get it? Or would it fall to earth in the arms of some deserving princess, and delight her by accident?

Love is in the air. We love our friends. We love our family. We love our dear readers.

And yes, we love our work.

We love it because it is so easy…and so amusing.

What is our work, anyway? It is merely pointing a finger at jackasses and laughing. And today, we are spoiled for choice. Everywhere we look, we see one.

Let us begin on the front page of the prestigious International Herald Tribune.

“Americans and Israelis aim to undo Hamas vote,” reads a headline. Isn’t this the same coalition that is pushing “democracy” and “freedom” throughout the world — at a cost of a trillion dollars, not to mention thousands of dead people? Weren’t we supposed to turn our faces up to the stars, after hearing the president’s State of the Union address, and reflect on how big a favor we were doing the rest of the planet…and how marvelously self-sacrificing we are to bring the wonders of democracy to woebegone outposts such as Afghanistan, Iraq, and Washington, DC?

Of course, it was just a bamboozlement. Nobody with any imagination or self-respect believes in mob rule, and no one would willingly accept the will of the people — unless it is on a matter of no consequence, such as the color of the flag or the selection of the national bird. Murder is murder and theft is theft…even if every member of the hit squad has a ballot in his hands. It is too bad the president didn’t say so in the first place.

But our beat is money, we remind ourselves. So, we turn our finger toward the world’s moneymen for a few more chuckles. We find them lovable, too.

And here is our own new Fed chairman, Ben Bernanke. “What will he do?” the papers ask

“I’m buying bonds,” said our hedge fund friend over lunch yesterday, “Because the American economy is definitely softening.”

Evidence for a softening U.S. economy comes in the shape of a downward curve. It is the yield curve, now inverted, which means that a borrower can score cheaper money in the short term than they can in the long term. This doesn’t happen very often.

Normally the further out they lend, the more money lenders want — for the obvious reason that risks increase with time. The further you go out in time, the more likely something bad, something unpredictable, will happen.

But, if you believe today’s yield curve, a miracle has happened. Time has started reducing risks! There may be an earthquake or a tornado tomorrow — the yields suggest — but certainly not over the next 30 years. We’re laughing already and we may not stop any time soon.

And yet, there it is: you can borrow more cheaply for the short term than you can for the intermediate term…and more cheaply for the long term than for the intermediate term. Something is clearly out of whack. And normally, when that happens, a slump follows.

“Fed policy is too restrictive,” say analysts. There is a “glut of savings,” says Bernanke, frowning. All of the wanton saving is pushing down long rates at the very moment when the Fed is virtuously trying to push up short ones. Ergo, the upside-down yield curve.

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis.

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