tag:blogger.com,1999:blog-5713178645208582139.post1709073389436181123..comments2024-03-22T02:37:15.030-05:00Comments on Macro Musings Blog: Bond Vigilantes To the RescueDavid Beckworthhttp://www.blogger.com/profile/04577612979801459194noreply@blogger.comBlogger15125tag:blogger.com,1999:blog-5713178645208582139.post-76785645848804960382012-11-15T21:49:23.914-06:002012-11-15T21:49:23.914-06:00If interest rates on Treasuries, say, double (leav...If interest rates on Treasuries, say, double (leaving them still "low"), what happens to the US fiscal position? Do we get enough additional tax revenues/lower spending from higher growth that it's a wash?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-21822339989026452842012-11-14T21:25:42.341-06:002012-11-14T21:25:42.341-06:00David, I think you truly believe that taking great...David, I think you truly believe that taking greater risk = growth.<br /><br />It is hard to understand who someone who spent a bunch of time in the private sector would make such a mistake.<br /><br />Growth - the Real kind, not the Nominal kind, comes from technology / market advancements that free up resources WHILE STILL delivering the old level of value (in an apples to apples comparison).<Morgan Warstlerhttps://www.blogger.com/profile/16938589106562557110noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-9283744782440123312012-11-14T13:07:39.195-06:002012-11-14T13:07:39.195-06:00Morgan, the Fed is buying a large share of longer-...Morgan, the Fed is buying a large share of longer-term treasuries but still only holds about 15% of total treasuries. So there is a long way to go.<br /><br />Regardless on the numbers, though, the Fed would not continue to buy treasuries if a strong recovery takes hold. My argument is that the the reason a recovery has not taken hold is that demand for safe assets remains elevated (i.e. David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-41703594484913100502012-11-14T11:43:26.242-06:002012-11-14T11:43:26.242-06:00The Fed is buying what 60%+ of Treasuries currentl...The Fed is buying what 60%+ of Treasuries currently?<br /><br />The options are then:<br /><br />1. Bond Vigilantes unloading what they have – and the Fed buys more driving down yields. The money moves to next safest asset, there is no positive assumption of growth. This continues until Fed is buying 100% of Treasury debt.<br /><br />2. The Fed isn’t buying more, and the BV are demanding a risk Morgan Warstlerhttps://www.blogger.com/profile/16938589106562557110noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-90547573955175929842012-11-14T10:30:00.102-06:002012-11-14T10:30:00.102-06:00Good thing you're as far away from the printin...Good thing you're as far away from the printing press as you are from sanity.Geoffnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-78601606299093809942012-11-13T19:25:16.689-06:002012-11-13T19:25:16.689-06:00Crickey, almighty, everyone is being way to namby-...Crickey, almighty, everyone is being way to namby-pamby.<br /><br />Print (digitize?) more money, and lots of it. Let it rip.<br /><br />Scott Sumner says the Fed should buy $50 billion a month in Treasuries, but raise that amount every month until we see nice solid NGDP growth. In other $50 billion this month, $70 bil next, $90 bil, etc. <br /><br />The timidity, the fine-tuning, the Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-47592422387268768792012-11-13T18:32:06.875-06:002012-11-13T18:32:06.875-06:00Anonymous, the point is that risk-adjusted real re...Anonymous, the point is that risk-adjusted real returns elsewhere should rise if bond markets expects higher inflation. The rise in expected inflation should reduce the intense demand for safe,liquid assets and also raise expectations of future nominal income. Given economic slack and sticky prices, this in turn should raise expectations of future real economic growth and thus expectations of David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-91771937784163368272012-11-13T17:29:14.531-06:002012-11-13T17:29:14.531-06:00Portfolios are currently in treasuries because the...Portfolios are currently in treasuries because the risk-adjusted real returns elsewhere are negative. Reducing the risk-adjusted real returns to treasuries (by increasing the risk of default and/or inflation) will only further depress returns on equities. At the moment, treasury returns are marginally positive; turning them negative will not force portfolios into equities but instead elsewhere.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-66789438982954358032012-11-13T13:41:45.251-06:002012-11-13T13:41:45.251-06:00Saturos, let me say it this way. The premise of t...Saturos, let me say it this way. The premise of the Krugman-Cowen conversation is that there would be a rise in the risk premium. I think that premise is wrong. Bond vigilantes' actions would actually lower the risk premium by helping stoke a recovery.David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-31170093207318196622012-11-13T13:20:47.370-06:002012-11-13T13:20:47.370-06:00Saturos, the reasons vigilantes would leave Treasu...Saturos, the reasons vigilantes would leave Treasuries in the firs place is (1) expectation of some kind of government default or (2) expectation of higher risk-adjusted return on other assets. Default for the U.S. government really means higher expected inflation. Thus, both higher expected inflation and higher real returns on other assets would create the positive portfolio rebalancing. David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-61131297623189985132012-11-13T11:10:48.576-06:002012-11-13T11:10:48.576-06:00So you assume that if vigilantes drive people out ...So you assume that if vigilantes drive people out of Treasuries, they will move to riskier assets, instead of finding another way to hoard?Saturoshttps://www.blogger.com/profile/01914831276101897944noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-14495888459904761902012-11-13T10:35:53.940-06:002012-11-13T10:35:53.940-06:00David,
Interesting post -- you're effectivel...David, <br /><br />Interesting post -- you're effectively arguing that there will be stimulus from a combination of portfolio balance and wealth effects. I think I see this differently. If you're curious, I wrote a post here: http://bit.ly/RVnba0.Evan Soltashttps://www.blogger.com/profile/06212305798151301158noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-52724289828154341692012-11-13T10:35:22.425-06:002012-11-13T10:35:22.425-06:00Nick: but number 3 should ne our objective. Return...Nick: but number 3 should ne our objective. Return to normal is not frightening to the public. They are the one who needs reassuring.Jacques René Giguèrehttps://www.blogger.com/profile/08044522160459914143noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-17536249667349229892012-11-13T06:12:27.934-06:002012-11-13T06:12:27.934-06:00Great analysis. Currently featuring your post and...Great analysis. Currently featuring your post and blog at fifthestate.co - Home of the financial, investment, and economic blogosphere. Thanks for all your contributions. Fifth Estatehttps://www.blogger.com/profile/09713442538071999308noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-88173558913045591232012-11-12T16:33:19.975-06:002012-11-12T16:33:19.975-06:00David: Yes, i think this is the right way to look ...David: Yes, i think this is the right way to look at it.<br /><br />Sometimes I wonder what we should call it:<br /><br />1. The attack of the bond vigilantes<br /><br />2. The bursting of the bond bubble<br /><br />3. The return to normal confidence in assets other than government bonds and money.<br /><br />They all look the same to me.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.com