tag:blogger.com,1999:blog-5713178645208582139.post2495238889725130585..comments2024-03-22T02:37:15.030-05:00Comments on Macro Musings Blog: Bill Gross Forgets About the Natural Interest RateDavid Beckworthhttp://www.blogger.com/profile/04577612979801459194noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-5713178645208582139.post-6444168179369759132011-12-21T13:36:27.508-06:002011-12-21T13:36:27.508-06:00David P.,
4% expected NGDP growth is weak since i...David P.,<br /><br />4% expected NGDP growth is weak since it does nothing to close the output gap or noticeably make a dent in unemployment--all it does is maintain the slump. A modest recovery in nominal spending does not cut it when a robust recovery is needed.<br /><br />But that is only half of my point. I also mentioned the flight to quality. I am putting up a post soon that further David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-89605656882143867822011-12-21T13:17:50.385-06:002011-12-21T13:17:50.385-06:00David,
"short-term interest rates are low bec...David,<br />"short-term interest rates are low because expected economic growth is weak"<br /><br />What measure are you using for expected growth? Economists' seem to be forecasting around 4% NGDP growth. TIPS spreads and corporate earnings growth forecasts also point to a continuation of the modest recovery in NGDP. IMO, these market expectations do not "fit" with a David Pearsonnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-25320267966815523942011-12-21T11:45:24.895-06:002011-12-21T11:45:24.895-06:00David,
Yes, the term premium is probably lower bu...David,<br /><br />Yes, the term premium is probably lower but is it because of 'financial repression' or because of a flight to quality? I also suspect that an important reason that long-term rates are depressed is that expected short-term interest rates are low because expected economic growth is weak. <br /><br />Thus, the lack of financial intermediation may have very little to do withDavid Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-78078832672144638322011-12-21T11:00:53.950-06:002011-12-21T11:00:53.950-06:00David,
"What Gross fails to consider is that ...David,<br />"What Gross fails to consider is that interest rates would be low now even if there were no Fed."<br /><br />I think Gross is saying the term premium would be higher in the absence of financial repression. The low current premium reduces the incentive for maturity transformation, which in turn reduces the volume of financial intermediation and velocity. I suppose he is David Pearsonnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-80533354541063061722011-12-20T22:50:43.826-06:002011-12-20T22:50:43.826-06:00Bill Gross seems to have slipped a nut lately. He...Bill Gross seems to have slipped a nut lately. He's a nice guy, and shrewd and careful. But I think he has made several bad forecasts of late, and rather than trying to understand the market, he is blaming the Fed.<br /><br />Gross just does not understand chronically low interest rates. He should think about Japan. He should think about global capital gluts. He should think about weak Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.com