Monday, April 10, 2017


In "normal times," the nominal interest rate -- the neutral interest rate plus inflation -- has fallen from around 6 percent to 3 percent. That creates a serious problem for the Fed. Here's why: Most recessions can be cured by lowering rates by several percentage points. When interest rates were closer to 6 percent, the Fed could lift the economy with plenty of leeway.
Boldface is mine.  Recessions cure sudden, high interest charges, the author has it backwards.

The Fed rarely effects rates, maybe 15% of the time, a fact reported by several studies.  Economists imagine the Fed sets rates all the time so that their equations close.   Most of the time the senate sets rates, it determines an acceptable payment stream, with the help of GS. Then it tries to adjust spending to hit the ten year rate target. When the senate fails it shuts.

In the sandbox

A senate shut down is a 'fails to deliver'. Smart risk analysis compute the varying odds as bets pile in. The current odds on fails to deliver in the senate are 40%, or so.

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