Posted on 12/01/2006 6:32:31 AM PST by shrinkermd
"...Since last summer, when the housing bust became unmistakable, interest rates on long-term bonds have fallen sharply. They’re now yielding much less than short-term bonds. The fact that investors are willing to buy those long-term bonds anyway tells us that these investors expect interest rates to fall. And that will happen only if the economy weakens, forcing the Federal Reserve to cut rates. So bond buyers are, in effect, betting on a future economic slowdown.
"...How serious a slump is the bond market predicting? Pretty serious. Right now, statistical models based on the historical correlation between interest rates and recessions give roughly even odds that we’re about to experience a formal recession. And since even a slowdown that doesn’t formally qualify as a recession can lead to a sharp rise in unemployment, the odds are very good — maybe 2 to 1 — that 2007 will be a very tough year.
(Excerpt) Read more at select.nytimes.com ...
Yield curve inversion usually is an accurate predictor of a slowdown. Why? Banks borrow short (from depositors and other banks) and lend long. When the yield curve is inverted, spreads have to widen to make it economic to lend. This discourages borrowing by limiting it to entities with higher cashflow relative to the risk-free rate of return on assets.
Less borrowing -> slower economy
More like a throw-up burp.
I usually make gifts for relatives. This year it's decorative little jams and jellies from the fruits we grow on our property.
My kids are getting older though, and they're getting pretty expensive. Ching ching $$$$.
That sounds great. We used to get small-batch jams and jellies from a place that doesn't exist any more. Their "Spiced Wild Blueberry" - a cinnamon and clove blueberry jam - was my favorite.
I'm a knitter, and a friend is getting an evening jacket this year. ONE project per Christmas is my rule.
zorry.....maybe this one will slip. I'm going to Christmas future....
You got it.........all of it is planned.
Hey! Me too. Wool ease socks were a big hit about 2 years ago.
My kids are never without wool hats, mittens, scarves, house socks, etc. (we even bought the sheep for the wool. Miniature Shetlands.).
Cool. I dabble in a lot of stuff. Quilting, rug braiding and locker hooking, soap making....
Between MediaBusters and NRO alone, Krugman is responsible for the full-time employment of at least a few (correcting his mistakes).
I guess, invest in Chinese restaurants....????? /sarc
Let's see ... 3rd quarter GDP growth has just been revised up, unemployment continues very low and real wage growth has now kicked in, the Conference Board's index of leading economic indicators are now pointing up (having gone sideways during the first part of the year), the stock market has been trending up strongly during the past three months, and yet Krugman is predicting iminent disaster. Why? Well, aside from the fact that he is extremly partisan, obviously suffers from some personality disorders, and hasn't published anything in a scholarly journal for some time now, it is because he has latched onto the correction that's taken place in the housing market.
During 2003 - 2004, housing prices were skyrocketing, due primarily to low interest rates and a very high Housing Affordability Index (130, where 100 is normal). Since then, interest rates have been returned to normal levels and - guess what? - the Housing Affordability Index has returned to normal (100), and demand for housing has simmered down.
To be sure, during the housing boom, some speculators were suckered in, on the Greater Fool Theory of investing (i.e., buy high, sell higher); and, as did some builders of spec homes. At this time, we have a glut (or, excess supply) of housing, and it is difficult to move inventory without taking a loss. Homeowners and developers are wondering if they should take the loss or hold onto their properties until prices rebound. In the long-run, the glut will be absored, and long-run trends in terms of population and income will restore housing to its usual attractive qualities as an investment. As to how long it will take us to get to the long-run is, truly, anybody's guess. But, here is what I will say about it: In view of the fact that the economy is performing as well as it is following the Fed's return of interest rates to their normal levels should encourage us as to the speed of the recovery in housing.
I guess tinfoil illuminati conspiracy theories are appropriate on a Krugman thread.
Maybe my meter is broken.
That does it. I'm asking Santa for a new planet for Christmas this year.
If we could sucker the Chinese to invest more in the restaurant business, that would be icing on the fortune cookie. But I'm guessing that's not what you mean.
I do. You've nailed the reason bond traders have less confidence in the economy. It's a very smart and good bet on their part. The economy will only get worse...hopefully not a lot, but certainly no better with Dems in control of 2 branches. Duh.
nope, just posted the events, just can't figure how they happened. :) Those aren't conspiracy theories....need to address the relatives of the ones that were quoted. Certainly not me......I just posted the facts and events as they occurred.
No, the reason you can predict the US economy is because you know nothing about it. The rest of us have to keep our eyes open.
Why would they plan a recession?
That's for sure.
Krugman's wrong about housing (sales of existing homes are up) and the bond market (interest rates are not spiking); but the biggest thing he's wrong about is what he's not saying, which is the Dems will make things worse by raising taxes and regulatory control.
IMO regulatory control is especially critical right now; check out IBD's Tough Rules, Global Competition Imperil U.S. Market Dominance.
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