Creditors Lament a Debtors Discontent

Dear Capitalist,

Here is a recap of this weeks headlines: US debt ceiling limit charade finally resolved with $1 trillion in immediate cuts, days the Dow dropped 500 points, 10 yr Treasuries dropped to 2.61%, while the unemployment rate dropped thanks to continued declines in adult participation.

Clearly it is not being dramatic to say the economic crisis continues unresolved.  How individuals rank the headlines is an interesting test of psychology.  Politicians have political agendas.  The media has a dramatic ratings agenda.  So markets and money across the globe in every commodity and via every currency and investment decision are astonishingly the only trusted signal callers.  This is only the case because policy makers have failed to grasp an agendaThe problem lies in the excessively reactionary responses, poorly translating the message that is abundantly clear.  Money goes where it is likely to get a return on investment or feels safe and especially so in a crisis.

Fundamentally, debtors borrows and creditors lend with a mutual understanding.  Funds will be allocated to a productive use and reap a reward that will offset the cost of borrowing plus a reasonable return on effort. Economic activity results and while the gains and losses vary on the whole the system is sustained and perpetuated.  When malinvestment results and debt service becomes an issue the necessary adjustments include either asset sales, increased rates, credit restructuring or debt default.

So in the case of Greece, current interest rates exceed the ability of the nation to invest and receive an adequate return.  The choices are as clear as the lesson of malinvestment.  This clarity must provide the framework for action without deterring those for whom the ability to invest for considerable return still exists.  This just so happens to be the exact message that markets are sending US policy makers if they would be willing to establish the internal framework-taxes, efficient services and regulatory control and invest in measurable projects with tangible returns.  

When I process this weeks headlines and attempt to understand markets the message is crystal clear.  Borrow here at 2.61% and do something productive with it.  Educate your work force so that businesses can use them for productive use, build efficient infrastructure to lower costs for business, care for your elderly as reward for a lifetime of productive work, train your unemployed to be productive.  It will only cost you 2.61% over 10 years.  Receiving and acting on that message is a matter of competence and survival.  Can your government do that?  Will you ask it too, please? 

Politicians will bluster, discredited ratings agencies will admonish and the media will bungle up the debate. But the numbers don't lie.    

Yours Truly,

Market