Please check out this rather impressive 25 Questions To Ask Anyone Who Is Delusional Enough To Believe That This Economic Recovery Is Real, which I found over at Financial Armageddon. Spoiler: things are bad.

I’d like to add a few other tidbits that indicate an extremely unhealthy economy.

Government’s Role in Personal Income Reaches All-Time High. 1 in every 5.5 dollars of personal income comes from the government. Any hope that the various stimulus programs are temporary better come with the realization that they didn’t stimulate anything. Dependency on government spending and transfer payments increased. When the spending goes, so will the illusion of recovery. Fortunately, a second stimulus of $200 billion will be different, and will spur self-sustaining economic growth. Incidentally, isn’t a call for more stimulus also indicative that there’s no recovery? When these programs inevitably wind down, we’ll see whether or not they were at least useful shock absorbers. We may have tried to cure a cigarette addiction with heroin. On the plus side (see below), we’re not out of heroin yet.

The last, and perhaps most important, indicator for a recovery is sovereign bond yields. Things don’t exactly scream “recovery” on that front.

I asked unsolicitedanlaysis for his (solicited?) perspective on the German 10 year bund yielding less than the equivalent US treasury. His answer struck me somewhere between unsatisfying and unsettling. I am not a bond trader. I have, literally, a couple thousand dollars in corporate bonds I intend to hold to maturity. I check in from time to time on various bond markets as a useful indicator. Credit markets tell a story that is worth listening to, if you can decode it. Right now, I can’t. The story appears to be that Investing in Germany, in euros is safer than investing in treasuries, in dollars. That makes absolutely no sense to me. This is a clear indicator for me to not try to become a bond trader now. I suspect that eurozone banks must hold a certain amount of euro-denominated sovereign debt on their books as some capital requirement. Given the choice between Greek debt and German debt, they could all be opting for German debt. Could this create enough demand for the bunds to drive yields below treasuries? Perhaps, but I’m not sure where I would find the data on that. I did perform some due diligence, even looking at the US and Germany’s tax revenue to GDP ratios. I learned some cool trivia, but nothing to help me decode the market message or explain the apparent absurdity.

Perhaps the explanation is that investors have lost their appetite for US debt. This explanation is easily rejected. First, the yield is quite low historically on the 10 year treasury (and was quite near a 1 year low). Second, the US just auctioned $42 billion in 2 year treasuries and managed to get the lowest yield on record. As the stock market rose, yields rose a bit, but a record setting auction indicates a voracious appetite for “risk-free” assets. Maybe it is time to sell more US debt.

No matter what the message, this is not an indicator of a recovery economy.

UPDATE: Since this is getting reblogged, I will point out here that I probably shouldn’t have said UA’s answer was unsatisfying. I don’t particularly want passerbys thinking I make a habit of disparaging explanations by unsolicitedanalysis.