How is it that Barney Frank's policies and Ben end up loaning short and buying long; paying a CitiCorp executive almost a billion? QM Theory has a simple answer, alluded to by Jim Hamilton a few weeks ago.
The top end of the yield curve is over populated with large financial institutions, Treasury, Congress and the Fed. There is not enough yield to support positions for each of these institutions, and they interfere with each other. The top end of the curve needs to be deflated to make the yield curve optimum. The three institutions, all of them want to go back to 2001 and re-do the financial rules. The result is simply inflation at the ten year term to the thirty year term on the yield. The three groups need to deflate, in Mellon liquidationist style.
We have deflated, deflation is necessary to adapt to the new consumption model. We will not grow until the top three willingly deflate, and it looks like we won't get a recovery until Republicans take the Congress and we get split government. We are back to the zero crossing problem, we cannot move forward until the top three financial institutions go through zero.
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