Maybe he was drinking, or smoking some crack before the statement, but Kohn actually told people (no, I'm not making this up) that the inverted yield curve was NOT sending a signal that the economy was heading into recession.
Which, of course, it exactly is. As which, of course, it always does.
Note to Kohn: IT'S NEVER DIFFERENT THIS TIME. NO MATTER HOW MUCH WE WANT IT TO BE.
Geesh.
Despite fears to the contrary, yields in the bond market aren't signaling economic troubles over the months ahead, a top Federal Reserve official said Monday.
"Folks seem confident the way ahead will be a good one, that inflation will stay low, the economy will do well, and they are willing to move out on the yield curve" as a result, Federal Reserve Vice Chairman Donald Kohn said.
The official was referring to bond market yields, which are historically low. More ominously, the fact that long-term yields are under that of short term ones has caused considerable concern, given that this has historically correlated with an impending economic slowdown or contraction.
"I don't think there's a strong message there for the Federal Reserve or economic policy makers," Kohn said. "It's something we pay attention to," but the bond market "is not sending a traditional signal," he said, explaining that yields can be understood as resulting from strong demand for long term assets and confidence among market participants the economy will do well and inflation will not be a problem.
January 08, 2007
Fed Vice Chairman Kohn says the stupidest thing I've ever heard out of the Fed today...
Subscribe to:
Post Comments (Atom)
26 comments:
For F*ck's sake, the guy works for the government!
What do you expect him to say? He's a hired cheerleader just like all those sleazy analysts that work on Wall Street!
Ive said it before and I will keep on saying it. The inverted yield curve only means that interest rates are believed to be headed down in the long term.
There can be many reasons why people may think long term rates would fall, certainly one such reason is the belief in a coming recession. But there are other reasons.
Actually, for once, a Fed-head may actually have it right stating "this time it's different" regarding the inverted yield curve.
In this particular instance, the fact that Japan, China, Taiwan, South Korea, and OPEC countries are MASSIVELY buying treasuries (and agencies too!!!) to keep their currencies low and their exports high to the U.S., they are in fact distorting the long end of the yield curve lower.
That's the good news.
The bad news is:
1. The U.S. keeps going further and further into debt to these competitors and even possible enemies.
2. The U.S. has decimated its manufacturing base in this "devil's bargain" of allowing U.S. companies (and others too) manufacture off-shore and ship the goods here.
3. And for the REAL kicker: if/when our "debt-enablers" decide they want a higher interest rate for continuing to pile up our debt, or they decide to sell the treasuries/agencies they are holding (about $2 trillion or so right now, and growing at about $200 billion per year), THEN you are gonna see some REAL fireworks as interest rates shoot up to levels not seen since "the good ol' days" of 1980-82, when we had double-digit mortgage rates, auto loans and other loans.
I don't need to tell you what THAT will do to the housing market, do I?
Or it could mean that the fed is an irrelevant blowhard POS that buys its own long term t-bills and proudly proclaims: "All is well". The fed is running the presses 24/7 now, pumping money into places it has no earthly business pumping it. I give the dollar a few more years in the international spotlight until the other countries of the world figure out that by hiding the demise of the dollar they are flushing their currency down the toilet as well. I expect "leakage" this year. A giant wall of bullshit. Price fixing, price gouging, market manipulations and out and out looting of the terasury. Oh wait, that's already happened. Never mind.
The inverted curve is usually a curse. The probability of recession is 40% at the present .-45 spread.
We're probably already in a recession.
Too bad the Fed official can't even get the most basic yield analysis correct.
His theory that a low term premium may be the cause of an inverted yield curve is plain wrong, though it could be a valid explanation of a flat yield curve.
The so-called term premium, even if it is low in the current conditions, increases with the term of the security. This fact makes it impossible as a cause of inversion, and there must be other explanations.
This is the sad state of either incompetence or political jaw boning at the Fed.
The simplest economics student cann call B.S. on his so-called analysis.
Casey's site just shutdown.
Inverted yield curve means the market (sheeple) think rates are going down, (possibly due to ressession) not that it's going to happen.
Although if enough believe it, it could become self-fulfilling
Fiat Money: History Repeats Itself
Unbelievable and a great lesson for us. Interpreting and comparing the signs-the stagnation in real wages, the public's unfettered euphoria about the already faltering economy, the nearly word-for-word pep talk spanning centuries--we may be closer to the point of no return than we think.
http://tinyurl.com/thpqj
The following article by Shannara Johnson, an editor for the International Speculator, examines the monetary roots of the French Revolution and, in the process, provides a compelling parallel to the current state of the U.S. dollar.
The yield curve was also inverted in 1998. No recession followed.
Yeh, interesting...
Will keep watching for other intersting real estate investing topics...
Kind of like enough sheeple believed that housing prices would skyrocket and they did from 2002-2005. Then the smartmoney left and the bagholders in bubble areas (CA, FL, AZ, NV, IL, MN, NJ etc etc) will be bent over for the next 7 years. Non-bubble areas will suffer collateral damage.
Great when can I lock in super high interest rates on 30 year bonds like in the early 80's.
Oh boy oh boy oh boy. Another mortgage broker goes tits up:
http://www.forsakencraft.com/mainframe.html
Woo hoo! All my puts on mortgage brokers are coming in!
The FED is correct. The FED knows that the inverted yield curve isnt a forwarning for recession because they are the ones BUYING up the treasuries.
They are monetizing the debt.
The inverted yield curve ALWAYS indicates we are headed into a recession? always?
I thought inverted yield curves had correctly predicted the last 10 out of 6 recessions, or something like that.
According to the anon realtrolls and housing bullshitters, anyone who has not bought a house has been permanently priced out of the market forever. With no more first-time buyers, current homedebtors cannot trade up to a larger, more energy consuming McMansion. That will spell death for the realtrolls and mortgage brokers. The current homedebtors will be stuck in their prisons forever, since renters have been priced out of going into debt to live in a home. Well, maybe they can keep trading back and forth amongst each other and keep taking out HELOCs.
My rent dropped 12% when I renewed my lease. My cost of renting is 1/3 of what it would be if I were a homedebtor today. Instead, I have no debt and over $100K saved up.
We'll see if I'm really priced out forever in the next few years. I'm seeing thousands of REO's where I live and more each day. I have a feeling it will be the flippers and FB's who will be priced out forever when the chips fall.
The inverted yield curve only means that interest rates are believed to be headed down in the long term.
Really? Or that some market participants may have other-than-profit-maximizing motives.
I think more correctly an inverted yield curve means that short-term rates are believed to be heading down in the long term---it has no predictive value on the future of long term rates.
What's strange is that Kohn is supposed to be one of the smartest (and generally hawkish) Fed people.
He wouldn't make such elementary economic errors---unless this was part of some serious public song and dance.
I think: he knows stagflation is coming. (War and peak oil tend to do that.)
Inflation has been persistently high and not going away, even though the past source of 70's inflation (large wage demands) has been squashed in many areas thanks to outsourcing.
He thinks that keeping the Fed really strict on inflation is more important than giving into the short term economic downcycle, so he is setting the PR background to keeping rates high to really kill inflation.
"examines the monetary roots of the French Revolution and, in the process, provides a compelling parallel to the current state of the U.S. dollar."
Laissez-les manger les derivatives!
--- Alan Antoinette
The yield curve is inverted because the chinks are buying our bonds to keep their chink currency low compared to the dollar. Without them, rates would be 2% to 3% higher. It's simply supply and demand.
maybe it's like this:
all recessions are preceded by an inverted yield curve yet not all inverted yield curves are followed by a recession.
although i beleive we are in store or one.
"We're probably already in a recession."
Dude, we've been in a recession since last year. It doesnt take a rocket scientist to figure it out. Oh wait a minute, maybe it does...
"The FED knows that the inverted yield curve isnt a forwarning for recession because they are the ones BUYING up the treasuries.
They are monetizing the debt.
"
And that my friend, is HIGHLY DEFLATIONARY.
Have a nice day.
Oh BTW, what do you call broke retirees? (And believe me, that will be PLENTY of 'em over the next few years)
Ans: Loyal Democrats.
"Folks seem very confident that the way ahead will be a good one, that inflation will stay low, the economy will do well, and they're willing to move out the yield curve and not get the compensation they usually get," he said.
-------------
I should be on the Fed. Atleast I know how to looks this stuff up.
Inverted Yield Curve
An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality. This type of yield curve is the rarest of the three main curve types and is considered to be a predictor of economic recession.
real estate 101 said...
The inverted curve is usually a curse. The probability of recession is 40% at the present .-45 spread.
We're probably already in a recession.
Monday, January 08, 2007 11:17:49 PM
-------------
More like: Stagflation
Dude, we've been in a recession since last year. It doesnt take a rocket scientist to figure it out. Oh wait a minute, maybe it does...
Thank goodness for HP and its wisdom. Guess it's this new math where 4.5% unempployment and 2% GDP growth now means recession.
Silly me.
Post a Comment