Things have been very fitful over the last several trading days, but there are several emerging themes that are operative over the short term.

1) Interest rates are on the rise. We’re now in the era of trillion-dollar deficits as far as the eye can see. Next week is going to be a quiet week, but the month so far has seen tremendous amounts of new issuance of government debt across the yield curve. (They’re scheduling their issuances basically from left to right on the curve.)

The thing that has tended to keep rates subdued has been the “safe-haven bid”: the feeling among the world’s investors that you have to own risk-free government paper just in case the world should end. Credit and capital markets have been stabilizing of late. This doesn’t mean they’re functioning normally, it just means they appear less likely to suffer massive new disruptions. This tends to reduce demand for Treasury paper (which is why rates have had room to rise in the face of the stepped-up issuance). It also reduces the demand for Japanese governments (which is why the yen has been falling like a rock lately).

2) Stock markets are seeing the potential for positive earnings news ahead. The overall economic outlook still calls for depression-like conditions, but stocks have been discounted to levels suggestive of total collapse. If earnings start coming in merely putrid instead of diabolical, there’s the potential for stocks to rally. Again, that’s a short-term call. The economic outlook longer-term is still extremely uncertain.

3) Consumer demand shows no sign of recovery. Until it does, the government is the economy, and the government’s growth in borrowing is the economy’s growth in output. The stimulus will do almost no stimulating because it was designed in such a half-tailed way.

4) The banking crisis is evolving. Several very intelligently-written (but very technical) posts have recently appeared, making the point that there’s a big difference between the value of “toxic” assets on a mark-to-available-market basis, and their hold-to-maturity value. On the latter basis, the banking system isn’t insolvent. But for a lot of reasons, that doesn’t mean banks don’t need new capital.

I’m glossing over a lot of critically-important detail that belongs in its own post. But the bottom line as markets see it, is that a nationalization of many large US banks is off the table for now. You can have your own opinion whether this is ultimately good or bad, but markets see a diminution of an immediate risk that a large amount of shareholder equity will be put to the torch. This is a short-term positive.