Shout out to Ray and Oliva from Econ 301 who showed it to me. Makes an x -D &D er like me smile.
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"In this way, unusually low real interest rates should be expected to be linked with inflated asset prices, high asset return volatility and heightened merger activity. All of these financial market outcomes are often interpreted as signifying financial market instability. And this observation brings me to a key conclusion. I’ve suggested that it is likely that, for a number of years to come, the FOMC will only achieve its dual mandate of maximum employment and price stability if it keeps real interest rates unusually low. I’ve also argued that when real interest rates are low, we are likely to see financial market outcomes that signify instability. It follows that, for a considerable period of time, the FOMC may only be to achieve its macroeconomic objectives in
association with signs of instability in financial markets." That's what I said nearly two years ago. FT.
"After Friday’s rout we have seen a fair amount of volatility in the JPY rate market, and this afternoon that has spread into all parts of the curve, including as of yet insulated short term bonds and swaps. 5y swap 9bp wider today moving from 27bp on Thursday to 45bp today. Similar moves in JGBs where 3y bonds have gone up to 16bp which we were at over a year ago. Swap-spreads too are blowing up. Feeling is that as this keeps going, VAR models force large holders of short-dated paper (Mega-banks) to hedge or sell. Couple that with extremely diminished liquidity and huge bifurcation of markets between cash, swaps and futures, have to think that Japanese holders of bonds will keep reducing and paying swaps." So many good posts of late.
China has created massive overcapacity in many industries. Independent analysts think that China may have grown at half the rate ( or less) than the reported numbers. Deciding whose ox to gore among the oligarchs is proving dificult. Pettis believes the country cannot chose moderate growth at this time. There is only a high or low button. Leadership rehtoric increasingly more pessimistic and negative.
Once again via Zerohedge. Its about whether inflation expectaions become unanchored........
As a fanboy, I include it for completeness.
Via Mish. Brad Delong opines. Delong points out the situational context of debt increases, whether your financial system is impaired or not and how these (and other things) matter. That economies will face nonlinear and potentially destabalizing threshold effects at some level of debt overhang seems to me a given. That the threshold may be different depending who you are -Japan vs Greece vs the US is so obvious as to be banal.
All western economies seem to be faced with a similar issues and constraints. What is the role of government? How do we deal with globalization and technological improvements? What type of public investments should we make to promote growth in the future? How do we design a financial system that functions as a growth channel without creating too much systemic risk? Should Central Banks only clean up after crisises or should they lean against asset bubbles? Does Central Bank policy itself contribute to systemic risk? How to we properly regulate/tax business activity? We have as a world made litle progress on these issues since 2008-2009. As they build up I see only more social upheaval for the rest of the decade. |
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