The Most Critical Thing

Future prosperity and expansion are entirely dependent upon the ability of the central banks to keep the interest rate genie in the bottle.

I don't know how they have done it so far. But the potential effect of a normalization of interest rates would be massively deleterious.

The treasury market implies long term inflation of about 2%. Assuming a 3% term premium, then normalization would return rates to between 4%-5%.

The debt servicing burden would very quickly rise to an unsustainable level - 15% of the government budget and 12%-15% of personal income. Lock it in while the going is good.

The New Normal

While the 'new normal' might have originally been invoked to describe a more subdued economic growth path as the economy absorbs financial deleveraging.

I was thinking perhaps a better use of the phrase 'new normal' is in describing the manner with which we have grown accustomed to extraordinary monetary measures. What five years ago would have been unfathomable, now passes without a blink.

The extent to which the Fed and the ECB have expanded their balance sheets and reduced their own lending standards is staggering.

And yet, in the new normal, it is, how should we say, 'normal'.

Thank You Blogosphere

It amazes me the quality of blog content. I don't know how these folks do it, day in a day out. I really wish I could convey a genuine thanks to the following people:

Barry Ritholz
John Hempton
Jesse's Cafe Americain
Felix Salmon
David Merkel
TheReformedBroker
Cullen Roche
Tyler Cowen
Diary of a Mad Hedge Fund Trader
Macro Man
Naked Capitalism
Zero Hedge
Abnormal Returns

They are all must reads. I have learned alot from them. I love learning from very smart people, and it makes me wish that I was that smart.

What remains to be seen is how long they can maintain it. Without a business model or the ability to leverage their content, it is a lot of hard work for little monetary return.