Gingrich: Barack Obama's Policies "Artificially Extending the Recession"

Date: 8/22/2010

Former Republican House Speaker Newt Gingrich says Barack Obama's policies are "artificially extending the recession Stock Market Decline Dow Jones Technical Analysis Market Commentary Nasdaq.

Former Republican House Speaker Newt Gingrich says Barack Obama's policies are "artificially extending the recession

SMF DROPS GDP TO 1.5 PERCENT THIS IS WHAT SMF HAD FORCASTED 9 MONTHS AGO AS TO WHAT THE YEAR END SLOW WOULD LIKE BASED ON EARNINGS TOPPING IN THE JULY 2010 QUARTER THAT MEANS MOVING THERE WILL BE LESS UPSIDE TO U.S. GROWTH ONCE AGAIN WE HAVE UPDATE OUR SMF TRADING STAFF AND WORLD WIDE SMF TRADERS.

Former Republican House Speaker Newt Gingrich says Barack Obama's policies are "artificially extending the recession." Congressman John Boehner, the party's leader in the House, says "stimulus policies aren't working." Republican Senator Jim Bunning calls Federal Reserve Chairman Ben S. Bernanke's tenure "a failure."

The U.S. bond market disagrees. The economy has never contracted with the difference between short- and long-term Treasury yields as wide as it is now. That gap, at 2.11 percentage points for 2- and 10-year notes, signals a 15.5 percent chance of a recession in the next year, according to the Federal Reserve Bank of Cleveland.

"Reports of the death of the recovery are greatly exaggerated," said Andrew Busch, a public policy strategist at Bank of Montreal's BMO Capital Markets in Chicago and former adviser to Republican presidential candidate John McCain and Treasury Secretary Timothy F. Geithner.

As politicians step up their rhetoric ahead of the November midterm elections, bond traders are watching the so-called yield curve for clues to the direction of the economy because before each of the last seven economic contractions, long-term yields fell below short-term debt. While that gap has narrowed since reaching a record 2.91 percentage points in February, it's still almost double the average since 1990.

Though economists are paring their forecasts, they still predict growth in gross domestic product of 3 percent this year and 2.8 percent in 2011, according to the median of 66 estimates in a Bloomberg News survey. Goldman Sachs Group Inc. economists say most of the sectors that drag down an economy, including housing, employment and capital spending, have "already suffered big hits."

No Double Dip

"As signs of slower U.S. growth have multiplied, market participants have become worried about the possibility of a double-dip recession," the firm's economists wrote in an Aug. 12 report. "The probability is unusually high - between 25 percent and 30 percent - but we do not see double dip as the base case."

The yield on the two-year notes due in July 2012 fell to a record low of 0.4547 percent last week, as investors pushed the price of the security up 2/32, or 63 cents per $1,000 face amount, to 100 8/32. The yield on the benchmark 10-year note, a 2.625 percent security due in August 2020, declined to as low as 2.53 percent, the lowest since March 2009.

The $8.18 trillion market for Treasuries, which help determine the cost of funds for everything from mortgages to corporate bonds, has returned 8.05 percent this year, including reinvested interest, Bank of America Merrill Lynch index data show. They lost 3.7 percent in 2009.

'Policies Aren't Working'

Republicans, who lost control of the House of Representatives and Senate in 2006, are pointing to rising demand for bonds, falling yields and faltering stocks as a sure sign the economy is poised to contract. The Standard & Poor's 500 index is down 3.9 percent this year.

It is time for Obama to "face up to the fact that his stimulus policies aren't working," Boehner of Ohio said Aug. 7, a day after the government reported the unemployment rate held at 9.5 percent in July.

The White House hasn't made much progress in selling the stimulus spending to voters. Asked how their opinion of the programs had changed in recent months, respondents to a Bloomberg National Poll were divided almost evenly among those who say they had become more supportive, those who are less supportive and those who haven't changed their view.

'We've Gotten Through'

A steep yield curve traditionally indicates economic growth as investors demand more compensation for the risk of faster inflation. A flatter yield curve signals contraction and little threat of inflation.

Though yields are hovering near record lows, the curve as measured by projections of the three-month Treasury bill rate to 10-year note yield suggest the economy will strengthen by about 1.14 percent over the next year, according to a July report from the Federal Reserve Bank of Cleveland.