Interest Rate ... Again

I hate to continue to harp on arcane information like interest rates and such, but the events of yesterday and today may be very important in the long run. Here's a chart giving some historical perspective on bond yields (click to enlarge):


A twenty five year downtrend in interest rates is being challenged. It's been breached, but only time will tell if it's a change in trend. If it is (and I believe it is), then we're heading for a period of sustained higher interest rates likely due to years of excessive credit, excessive government spending, excessive deficits ..... in short ... excess. We may be facing something similar to the economics of the post-Vietnam era. Conditions sure look awfully familiar.

Added: This:

What if the predominant owners of U.S. debt - Asian Central Banks - were to find themselves with less money as a result of a slowing U.S. economy and consequently a consumer cutting back and purchasing fewer cheap (or not cheap, see yesterday's Five Things on Chinese labor) Chinese goods? Absent a new buyer of U.S. debt, the net result would be a slowing economy with rising rates, would it not?

Added: This chart, which shows the trade deficit. The blue line is the total, black is only petroleum and red is without petroleum. Note, as the line goes down the deficit is growing a vice versa.


It appears that the trade deficit may have bottomed in the second quarter. And just what does that mean? We're importing fewer things (Read: China). That means China has fewer dollars sloshing around which means fewer purchases of our debt which means .... voila': higher interest rates. Also note that this change in trade deficit correlates quite nicely with the drop in home equity loans .... Chucky's ATM.