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Home Publications Blogs Beat the Press The Post Makes It Up on Fed Stimulus

The Post Makes It Up on Fed Stimulus

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Thursday, 08 July 2010 06:49

In an article discussing measures that the Fed could take to provide a boost to the economy, the Washington Post tells readers:

"When the Fed was buying $300 billion in Treasurys in mid-2009, part of its try-everything approach to dealing with the crisis, rates on 10-year bonds temporarily spiked amid concerns that the Fed was "monetizing the debt," or printing money to fund budget deficits. With deficit concerns having deepened in the past year, such fears could be even more pronounced now."

The markets don't tell anyone why they moved in a certain direction at a specific time. It is not clear what spike the article is referring to, but the cause of the spike is entirely the interpretation of the Post and should clearly be identified that way. The Post does not really know what caused interest rates to rise, it is presenting its speculation to readers as a fact that is then used to support the case for a more cautious monetary policy.

Comments (4)Add Comment
...
written by fusion, July 08, 2010 8:39
10 year treasuries dropped from 3% to 2.5% March 17-18, then rose steadily to 4% in mid June, then bounced around 3.5% for the rest of the year.

http://www.treas.gov/offices/domestic-finance/debt-management/interest-rate/yield_historical_2009.shtml
...
written by skeptonomist, July 08, 2010 9:23
The WaPo is apparently only aware of positive movements of interest rates. Look at this view of 10-year Treasury rate:

http://research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=DGS10&s[1][range]=5yrs

The significant spikes since late 2007 are negative: first, the huge drop in late 2008 at the time of the credit crisis; and second the current drop of about 1% starting with the European crisis earlier this year. The rise in mid-2009 was the recovery from the first drop, as general confidence returned and the flight to security abated. The movements (together with those of corporates, which can also be seen at the St. Louis Fed site) indicate that in times of uncertainty investors turn to Treasuries over corporates, and to U.S. securities over European.

A few economists, notably Krugman, understood these movements from the beginning, but some others, including Bernanke, are still confused, or just pushing political objectives.
...
written by izzatzo, July 08, 2010 10:07
However it's reported, one way it's never reported is how Baker describes monetized debt should be used during a deep recession. It's essentially extra money parked at the Fed, used to absorb excess productive capacity as reflected in the unemployment rate. As long as the two are reasonably in sync, more money for more capacity and labor utilitization, as indicated by low interest rates and deflation, it's not the problem railed at by the austerity crowd.

That monetized debt was also used to quell the financial liquidity/insolvency crisis is a different question, which Baker has challenged as unnecessary, noting the government instead could have used its powers in other ways to accomplish the same result for far less cost, which amounted to a huge subsidized bailout.

Most journalists can't tell the difference. They see the financial bailout and stimulus as the same thing, a massive subsidy by taxpayers and even slant it further by claiming the bankers paid back their part of the bailout. Thus the seemingly consistent but flawed explanation of "why the market is worried" as reflected in a spike here or a drop there.
that hyperinflation of 2009
written by Christian Mannhood, July 08, 2010 11:06

Yeah, they spiked at 4%. That's hyperinflation isn't it?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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