Rate paralysis creates illusion of stability

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Commentary: Suspense builds as everyone waits for the economy to declare itself

By: Lou Barnes Contributor

Long-term rates have been unchanged for a month and a half, the 10-year T-note between 2.5 and 2.7 percent, mortgages near 4.5 percent. That stability is an illusion. Trading desks now labor in deafening toe-tapping, pencil-drumming, fidgeting and superstitious desk-rearranging (and sock selection) as everyone waits for the economy to declare itself. Will the Fed’s acceleration appear? Or another false dawn? It’s going to take months to know, hence the rate paralysis. A thin week for data supported acceleration: The ISM service-sector jumped to 56 in July, way above expectation and one of the best readings in five years. Stocks are sliding, the fear of Fed withdrawing stimulus trumping a better economy — which seems odd, but so has the stock market run. Do not believe news of a European bottom, let alone turn.

Germany is doing better, but its improvement reveals the fatal problem: Its trade surplus is still 7 percent of GDP. Its weak partners trapped in the euro must be able to run surpluses of their own, including in trade with Germany. The zone cannot turn until Germany imports from the others, or subsidizes the others with its winnings from a euro undervalued for Germany’s productivity and overvalued for all the others. President Obama delivered his third speech of five on the economy. May the saints preserve us. Only two to go.

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