It's the yield curve, ya'll

Updated:
12.4.18:

Just saw headline about the yield curve inversion that happened yesterday.  In my opinion, this is not significant...yet.

If the yield curve inverts all along the yield curve--- which means the 1 month rate is higher than the 30 year bond rate, then you have a real yield curve inversion that means something.

What we have here is a beginning, not the end point.  If the rate hikes don't stop, there could be a problem.


11.29.19:

1:00 pm:

Here's more evidence of Fed mismanagement, in my opinion.  The Fed drops interest rates sharply in reaction to credit freeze ( summer 2007 ), but reverses course, and tightens again.  However, they are in loosening mode thereafter.  The Fed is signaling that something is wrong, but doesn't act aggressively enough to forestall the total breakdown that occurs in 2008.  ( Just in time for the election )

8:00 am:

Seems like a "buzz" has been generated with this talk about the Fed and Trump.  Can Trump do anything to the Fed in order to make it do what he wants?

The Fed is supposed to be neutral and independent.  However, given everything else that has been happening, I wouldn't be surprised if there is some sort of monkey wrenching going on.  That is to say, it could be sabotage. Therefore, if the government gives that much power to an independent entity, it could be a mistake.  Don't know if that is the case here, but I would like to see at least some political accountability just in case the Fed gets out of control.

If rates go up too much, it becomes a drag on the economy, and that could mean recession.   Therefore, Trump is doing all he can to try to prevent the Fed from getting too hawkish on inflation, and by doing so, start another recession.  A recession during the Trump administration is exactly what he doesn't need.

Unless there are clear signs of accelerating inflation, raising interest rates much further is not justified.

What I tried to do with this post is to show how much power the Fed has over the economy.  Fed policy mistakes can spill over into the political process.  There is some suspicion by yours truly that this did indeed happen during the last recession.  Obama could have gotten into power partly by the belief that Bush mishandled the economy.


11.28.19:

Obama is out there taking credit for the oil boom.  Actually, this credit may belong more to "Dubya", but I may need to research that.  Obama and the lefties have been trying to strangle the fossil fuel industry since he came into office.

Not to mention that Obama tries to take credit for the boom of the last two years.  With that thought in mind, I write once again that the Fed has far more influence over the macro economy than Presidents do.  But Presidents can muck things up, too.

Just look at the yield curve over the Obama years.  It was flatter than a pancake the whole time.  Only now does it begin to normalize.

But there is a danger.  If you look all the way back to 2008, the yield curve was still partially inverted.  This was after the recession was well under way.  There is almost no excuse for that condition being in effect.  The Fed could have done something about that, and should have done something about that.  At this point, in early 2008, the credit freeze had already taken place, and that was the beginning of the recession.  Rates were already coming down.

If you recall, 2009 was when Obama took office.  At the time, everybody was blaming "Dubya" for the economic pain.  If he was to blame, it was because he didn't do more to "jawbone" the Fed into reducing rates much faster.  Bush was a gentleman, alright.  Too much of one.

Note how the 6 month rate is higher than the 5 year rate.  The yield curve is partially inverted.   When short term rates are higher than long term rates, monetary policy is tight.  Why should monetary policy be tight during a deflationary threat?

Trump gets criticized for not being a gentleman, but what good does it do to be a gentleman when the opposition will kick your teeth in?  Bush was a gentleman, but his approval numbers went into the tank because he got all the blame for the poor economy.

Bush was too nice.  Trump gets it.  Nobody in the Establishment wing of the party seems to get it.