Insider

Guest Post: Defeating Demon Deflation

Tuesday, August 24, 2010, 5:42 PM
Enroll NowFor enrolled members only. Enroll or Sign in to read the full article.
by machinehead

This post is one in a series from respected guest commentators while Chris is at work on his new book. Many of you will recognize today’s author from his insightful comments that appear frequently across PeakProsperity.com. Enjoy!

Since early April, the yield on 10-year Treasury notes has dwindled from 4.0% to below 2.5% on August 24th.  Meanwhile, the 12-month change in the Cleveland Fed's median CPI has hovered feebly between 0.5% and 0.6% since March.  These abnormally low interest and inflation rates are fanning fears of renewed GDP contraction, a plunge into price deflation, or both.  Boardrooms and blogs are humming with rumors of a 'QE II' (Quantitative Easing II) program to counter a chilly deflationary dip.

One reason fears are so acute is that the Federal Reserve's main policy tool, the overnight interest rate on Fed Funds, is flatlined at zero.  Moreover, via 'extraordinary measures' beginning in September 2008, the Federal Reserve added some $1.4 trillion of securities, including $1.1 trillion of MBS (mortgage-backed securities), to its balance sheet in a stimulus bid.  Yet despite these heroic efforts, economic leading indicators have turned weak this summer, as sinking Treasury yields add to the disquiet.

 

Enroll Now
Or Sign In with your enrolled account.
Endorsed Financial Adviser Endorsed Financial Adviser

Looking for a financial adviser who sees the world through a similar lens as we do? Free consultation available.

Learn More »
Read Our New Book "Prosper!"Read Our New Book

Prosper! is a "how to" guide for living well no matter what the future brings.

Learn More »

 

Related content

46 Comments on Guest Post: Defeating Demon Deflation

Enroll now or Sign In to read all member comments.