Daily Investment Interpretations

March 13, 2009

2009-3-13:   The markets eked out another gain today. The NASDAQ increased 5.40 (0.38%) to 1,432. The Dow gained 53.92 points (0.75%) to 7,224, and the S&P 500 added 5.81 (0.77%) to end the day at 751. Oil closed at $46.05, while Gold added $6.10 to reach $930.10. The VIX rose 0.2 to 42.38.   
    One of the most significant news items today (March 13, 2009) was a public statement by Chinese Premier Biggest holder of U.S. debt. that China is "worried" about its investments in the United States and wants assurances that they are safe. (Is this  associated with the fact that the risk premium for U. S. Treasury bonds has seven-folded over the past year: U.S. sovereign-credit spreads jump?) China has invested $696 billion in U. S. Treasury bonds as of December 31, 2008. (China has $1.95 trillion in foreign reserves.) Another article explores the Limits to U.S. borrowing. To get an idea where the U. S. stands with regard to its national debt, the national debt at the moment I'm writing this (08:46:57 GNT--5:46 p. m., EDT-- on March 14, 2009) is $10,990,803,332,734.77... in other words, $11 trillion. This is approximately 77% of the estimated 2008 U. S. GDP of $14.58 trillion (CIA - The World Factbook -- United States). The highest ratio of national debt-to-GDP of which I'm aware occurred in 1946, when it reached about 1.2 (120% of GDP). Today, 120% of our $14.58 trillion GDP would be about $17.5 trillion, or about $6.5 trillion above where it is at this moment. However, the "recession" is reducing the GDP, so far by about 2% (about $300 billion), reducing our distance to the ceiling to $6.2 trillion: Not a Depression, but signs are grim. White House economic advisor Lawrence Summers gave a speech today in which he said,
US would need more borrowing if deflation sets in: Summers  "If deflation sets in, if the GDP (gross domestic product) collapses further, if the consequences of that collapse for the financial system and even just the insured parts of the financial system, if that happens, the magnitude of the federal borrowing as large as it is today will be dwarfed, will be far, far larger," he said at the Brookings Institution.