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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Yield Curve

Posted by WARREN MOSLER on December 30th, 2008


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>   
>   from: Warren Mosler
>   to: CNBC
>   
>   The long end is higher than ‘equilibrium’ due to the Treasury
>   issuing longer term paper.
>   
>   This adversely alters investment and price signals.
>   
>   When the Fed buys it the curve returns to where it would
>   have been if the government had stayed out of it in the first
>   place.
>   
>   


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8 Responses to “Yield Curve”

  1. knapp Says:

    How do we know that short term paper (2 year Tsy) isn’t also higher than equilibrium due to issuance at that end of the curve?

    Has net issuance been significantly less in the short end?

    Or might buying at both ends of the curve leave the yield curve essensially unchanged?

    Reply

  2. warren mosler Says:

    it is, but to a lesser degree.

    the closer you get to overnight funds the less a given volume of secs has influence.

    the curve is anticipation of the fed plus technicals, which include tsy secs

    Reply

  3. Dave Begotka Says:

    Warren? Why did you give me the boot?

    Too Scary for you?

    Reply

  4. Dave Begotka Says:

    Wow this one got posted? I don’t mean you any disrespect, but the issues I bring up are real and getting scarier every day!

    Reply

  5. Mike Sankowski Says:

    I think lots of comments were not being let through for some reason.

    Anyway, if the long end of the curve is fully pricing in the fed spending anticipated over the next year, we should be spending lots more.

    It might be best to try to get to a point where expected huge spending doesn’t result in all time low yields. I think this is going to be the signal that we are no longer facing a deflationary environment and recovery has begun.

    Reply

  6. warren mosler Says:

    Dave, don’t know what happened, but seems no comments came through for several days.

    I was starting to take it personally!

    Mike, rates generally change when ‘the market’ suspects circumstances may result in rate changes from the Fed. So I sort of pretty much agree with you.

    Reply

  7. Dave Begotka Says:

    Warren, you know I am kind of touchy! I posted a link for you to Richard Gage’s presentation and it never posted?

    This has been in front of many other governments including Japan’s parliament, how can we look like a credible country with all of the corruption? This has got to affect economics if we look like we are led by a cult who would do something like 911 or not stand up for them selves when accused.

    Reply

  8. warren mosler Says:

    i hear you!

    Reply

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