It should be as simple as it sounds. Lower LT UST yields, less growth and inflation. Thus, higher LT UST yields, more growth and inflation. Right? If nominal levels are all there is to it, then simplicity rules the interpretation. Visiting with George Gammon last week, he confessed to committing this sin of omission. Rates have gone up, he reasoned [...]
Irving Fisher was a prolific economic writer and thinker. In addition to decomposing bond yields into growth and inflation expectations, he also came up with something called the money illusion. He ever went so far as to write a book on the idea, published in 1928, for all his imagination called simply The Money Illusion.At issue is, essentially, human nature. [...]
The obsession with inflation is grounded in historical fact. This is true both of our recent “conundrum” as well as broader circumstances surrounding slow burning structural changes. As to the former, last year the global economy was supposed to take off, concurrently signaled by accelerating inflation rates due to what are always claimed to be tight labor markets. The worldwide [...]
According to orthodox theory, if interest rates are falling because of term premiums then that equates to stimulus. Term premiums are what economists have invented so as to undertake Fisherian decomposition of interest rates (so that they can try to understand the bond market; as you might guess it doesn’t work any better). It is, they claim, the additional premium [...]
I feel almost obligated at this point to present UST volatility whenever referring to funding markets. Hopefully that “duty” will subside in the near term, but as I suggested yesterday this week is setting up to be much like last week. When I wrote that, however, I didn’t mean to propose a literal copy from week to week, but that [...]
It’s mostly accepted that what a central bank does is no more inconsistent with capitalism than what you and I do on a regular basis. There are various reasons for this self-inclusion which should be disqualified based on common sense alone, but monetary theory is, by intent, impenetrable beyond the few indoctrinated in its ritual mathematics. This isn’t to say [...]
Bill Dudley, never one to shy from causing controversy, regained the throne of most honest Fed official. Speaking at an economics conference, the President of the New York Branch, the one with all the QE assets, Dudley admitted, "We don't understand fully how large-scale asset purchase programs work to ease financial market conditions, there's still a lot of debate ..." [...]
I’m sure there is a textbook definition, perhaps even clinical, of recency bias, but to me the term refers to an inability to see past the margins. In short, it is a failure of imagination. We see this most clearly in econometrics and statistical analysis, where “tail risks” happen far more frequently than the numbers predict. Rather than rethink the [...]
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