Here is what to notice, the spread. When the color lines are spread out then we are in a dip. That is, the risk from sell a two year note and buying a ten year note goes up. When the lines are spread apart the risk is higher going from two to ten, for example. The lender needs more rate if he is letting you hold cash for that long. Look at that spread starting with the end of the crash, it is a large spread, then it gets narrow at about 2012, when the economy picked up a bit. Now it is spreading again, as if we are having a bit of a dip in output. Looking back at the middle of the cycles, when business was good, the spread was narrow.
What about debt to GDP?
The orange line above. It has turned sharply up, just as the spread increased. Well, that's a bummer, especially since we barely got the yearly deficit back to 4% of GDP when it was 10% of GDP.
So what next? Dunno. But the economists are in the stars, they think the jobs report was exciting. Somone should look at the term structure of government debt, how much of that is long term and how much was short term. last I looked it was mostly six year debt. It matters, when the debt structure is increasingly long term and has to be rolled over, then the debt costs get a double whammy spike.
As a temperature spectrum
Its a colder economy, longer wavelength radiation, the peak moving out to the long end. When the economy is over heated it is not maximum entropy, and has a flat spectrum. This is an economy that is trying to get efficient fast, trying to find a peak. That is our problem, we do not have efficiency when running at capacity. Mathematicians need to add the inefficiency into the yield curve model. Wiki has an article on that under general entropy modelling, I think.
No comments:
Post a Comment