The market did have trouble digesting the amount of new debt. Treasury debt in the 5 -10 year range is going to be met with little enthusiasm for quite awhile I suspect. Who would want to go out that far on the yield curve if interest rate increases are right around the corner? (Remember that the longer the duration the more sensitive the bond is to interest rate changes)

As for the stability of the economy, if it is viewed as unstable, that would be the time to move from equities or more risky investments into Treasuries. So Greenspan’s comments, rallied Treasuries on the fear he mentioned regarding geopolitical events. So the geopolitical risks actually helped the new offering gain acceptance.

Exogenous shocks (like someone bombing the Golden Gate Bridge), can be overcome even in the short term. So I don’t see it as a deterrent to the economy “muddling along” but a drop in consumer spending would cause me to worry considerably. Consumer spending has held up incredibly in the face of all kinds of events. I would hate to see it get tired. Even though “targeted capital investment” does have opportunity, a lack of consumer demand for so many mainstream businesses would make the mud in muddling that much deeper.

And that is Just My Humble Opinion (JMHO) 🙂

The retail figures ex-auto look pretty good. But what about consumer credit, not a particularly important economic indicator, because of the large disparity of predicted levels vs. what was reported $3.5b expected and -$4.0b reported) and the record that it set. I suspect a massive revision, but nobody will notice! ;-))

But let me take the opportunity to ask if you think consumer spending will continue to hold up the economy for the foreseeable future? Or are we in trouble if business spending doesn’t pick up?