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美国本特利大学经济学教授斯科特·萨姆纳(Scott Sumner)

 
 
 

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美国本特利大学经济学教授

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Is anyone at the Fed watching the TIPS?  

2009-06-28 17:56:09|  分类: 默认分类 |  标签: |举报 |字号 订阅

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Is anyone at the Fed watching the TIPS? *****Update 6/24/09*****

I just wanted to let you guys know that I am having increasing problems with computer viruses.  Some of you have noticed span in the RSS Google reader.  I have also lost my links information, and now I have lost my ability to write new posts.  The reason for my “Drudge-like” attention-getting update is that since I can’t post anything new, my only way to contact you is by amending existing posts.  I have been working on a new post, one of my “grouchy” ones, but can’t post it yet.  Instead I’ll complain about today’s Fed action, or should I say lack of action.  The S&P fell about 8 points right after the 2:15 announcement.  The 5-year TIPS spread is now back down to 1.42%.  Where’s that hyperinflation everyone on the right keeps promising us?  And by the way, where’s that global warming Al Gore promises?  I’m not comfortable unless it’s at least 85, and it’s been in the 60s in Boston this summer.

Seriously, I have no reason to doubt the science on CO2 and global warming, but the real action is in the economics of global warming.  The new Journal of Economic Perspectives has 3 interesting pieces on the subject.  One thing I took away is that the apocalyptic visions being made of extreme global warming just won’t happen.  I predict a maximum of 2 more degrees centigrade.  Geoengineering is for real.  I’d like to know more about how serious the problem of ocean acidification from CO2 really is—it could become a key issue.  And also more research on the possibilities for technologies that remove CO2 from the air at remote locations where it can be buried.  My hunch is that we’ll try to create clouds from sea water at higher latitudes if temps threaten to rise more than 2 degrees, and then work on a technology to remove CO2 already emitted in the second half of the 21th century (to deal with the ocean acidification problem.)  If I am right, that’s tilts the argument away from Stern’s more ambitious agenda, toward Nordhaus’s less costly approach to the problem.

BTW, I’m told that tomorrow morning my debate with Lee Ohanian (on the issue of deflation/inflation) will begin on CBSMoneyWatch.com.  It will be a three part debate.  Sorry for all the problems here, and thanks to those who have stayed around despite the problems.  I think Austrian economists may like the next post.

Let’s take a look at inflation expectations since the stock market (and TIPS spreads) hit a low in early March:

Date    5 year TIPS yields   5 year T-bond yield   TIPS spread    S&P 500

3/9/09         1.52%                       1.90%                 0.38%           676.53

4/1/09         0.93%                       1.65%                 0.72%           811.08

5/1/09         1.24%                       2.03%                 0.79%           877.52

6/1/09         1.02%                       2.55%                 1.53%           942.87

6/10/09       1.08%                       2.93%                 1.85%           939.15

6/19/09       1.23%                       2.80%                 1.57%           921.23

6/22/09       1.23%                       2.70%                 1.47%           893.04

We had a nice run up in the spring, as higher inflation expectations were associated with higher equity prices.  I don’t know the cause of this.  It might have been the pickup in Asia, especially China, and it might have been partly due to quantitative easing by the Fed.  But from the moment the Fed announced its QE policy I argued that it was inadequate.

A recent article on Yahoo discussed a bearish World Bank report on the world economy.  It looks like the pickup in Asia is not being seen in other areas.  Of course slow growth could be due to either less AD or less AS.  But if you look at the way commodity prices and inflation spreads responded to today’s report, then I think it’s pretty clear the markets are still very concerned about weak AD.  See what you think:

NEW YORK (AP) — Expectations of a weaker global economy are giving stock investors more to be wary about.

Major stock indexes retreated by more than 2 percent Monday, sending the Dow Jones industrial average to its lowest level this month after the World Bank estimated the global economy will shrink 2.9 percent in 2009. It previously predicted a 1.7 percent decline.

Deteriorating hopes for a quick economic recovery also weighed on the prices of oil, metals, and other commodities. Those commodity price drops in turn sent energy and metal producers’ shares falling.

. . .

The Federal Reserve will also be in the spotlight after its two-day meeting on monetary policy that ends Wednesday. The central bank is widely expected to hold its key funds rate steady near zero, but investors want to know whether policymakers will say the economy is recovering or still in need of aid.

I have suggestion for the Wednesday meeting.  Announce that as of July 1st the 1/4 point interest payment on excess reserves will be replaced with a 1% penalty rate.  This will give banks time to do an “open market purchase” of $800 billion worth of Treasury securities.  As they replace their excess reserves with T-bonds, the reserves will go out into circulation.  It would be QE without the Fed having to add any more risky assets to its balance sheet.

I know that most people will say the Fed has already done too much.  And I imagine some people will tell me (correctly) that the TIPS spread is not always reliable.  It doesn’t always measure inflation expectations perfectly.  There are liquidity issues as well.  OK, let’s say you’re right.  Let’s say that 5 year T-bond yields have not been falling since June 10th because of lower inflation expectations, rather they are falling because in a depression people want the most liquid asset next to cash—US Treasury securities.  Is that supposed to reassure me?

[PS:  I do know about the problem with the Viagra ads in the RSS feed, and hope to get it fixed soon.  Until then you can simply type the blog address.  Also, I may soon be involved in a couple debates with other economists on the question of inflation fears.  I will let you know.]

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