Tuesday, February 16, 2010

Real and nominal treasury yields

Good work by George Hall and Thomas J. Sargent


Note: The blue line is our computed interest payments on the debt. The red line is the officially reported interest payments. Both series are reported as percentages of the total market value of publicly-held Treasury debt. The black line is the red line minus the inflation rate.
My take:

Inflation affords a continuous default for federal borrowing. The black line is the real yield on Treasuries, and it has been declining. Hence the problem for foreign dollar holders, finding a better yield.

The period from 1980 to 2006 economists like to call the Great Moderation. My guess as to the cause is simple, the deployment of personal computing in the hands of business and financial planners. Their measures became much more accurate.

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