# State For Me The Case That We're Economically Nowhere Near Out Of The Woods **URL:** \ **Category:** Great Debates\ **Created:** [June 15, 2009, 1:58am UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791 "2009-06-15T01:58:58Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Try2B\_Comprehensive](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/try2b_comprehensive/32/65_2.png) [@Try2B\_Comprehensive](https://boards.straightdope.com/u/Try2B_Comprehensive)\ **Post date:** [June 16, 2009, 4:53am UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/21 "2009-06-16T04:53:44Z")
Re: oil shale. In Colorado, the _last_ major unused water rights were recently diverted into an oil-shale project. However much oil comes of that is more or less all you will ever get. As populations increase, they’ll want to use that water for other things. There are in fact physical limits on oil shale production. But hey, come up with some Star Trek technology that takes water out of the equation and we’re in business. ---
**Author:** ![dropzone](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dropzone/32/7515_2.png) [@dropzone](https://boards.straightdope.com/u/dropzone)\ **Post date:** [June 16, 2009, 4:59am UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/22 "2009-06-16T04:59:39Z")
My “Bindlestiffs with Bikes vs Guys Who May Have Jobs But Whose Bikes seem to be w/Backpacks for Other Reasons Ratio,” based entirely on a physical assumption of the bum/non-bum ratio; taken at noon, was 2:2. Taken two blocks to the west and at 6PM, when the bums would be flocking at the Temple on Highland, the number would be higher. Rule of thumb traveling south on Highland most of the time and observing a person who appears to be talking to himself? He might’ve blown a tire and is making excuses for missing a theatre. After 6PM? It’s just a few more blocks and, as he detached from reality long ago, you probably don’t wlant to offer a ride. FTR, Wife serves at that shelter. I worry about her until she gets home. She’s a tough woman, as I’ve described on this board. I still worry and wish she would stop, but her descriptions of the OLD folks who do most of the (literally) heavy lifting leaves me feeling like a coward. Okay, I’m a coward. ☹ ---
**Author:** ![BigNik](https://avatars.discourse-cdn.com/v4/letter/b/73ab20/32.png) [@BigNik](https://boards.straightdope.com/u/BigNik)\ **Post date:** [June 16, 2009, 5:05am UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/23 "2009-06-16T05:05:21Z")
I hate to say it, but **Sam Stone** isn’t actually wrong. The prospect of a looming trade war spurred by protectionism making things worse for everybody isn’t idle. Many of the “big” numbers aren’t looking too bad. In fact, they’re pointing to a recovery. Housing starts, GDP, employment. If you look a little deeper into numbers about inventory levels, investment spending, new business loans and so forth, you get a slightly different picture. People are spending cash that they got as stimulus, but it’s stopping at the first or second cycle through the economy. Until we see some indications that these secondary numbers are reversing their retreat, things are getting worse, not better. ---
**Author:** ![Blake](https://avatars.discourse-cdn.com/v4/letter/b/a9a28c/32.png) [@Blake](https://boards.straightdope.com/u/Blake)\ **Post date:** [June 16, 2009, 5:22am UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/24 "2009-06-16T05:22:26Z")
> [@Try2B\_Comprehensive](#): > > Re: oil shale. > In Colorado, the _last_ major unused water rights were recently diverted into an oil-shale project. However much oil comes of that is more or less all you will ever get. As populations increase, they’ll want to use that water for other things. There are in fact physical limits on oil shale production. . Nope. Shale oil uses about 3bl of water for each bl of crude. In contrast oil wells use about 8 bls of water. So this limitation is just more true of liquid crude than it is of shale. Added to that there’s lots of water in the ocean and in saline aquifers and it has no further use to humans. Perhaps in the unique case of mountainous and landlocked Colorado that provides a limit, but for most of the world’s oil shale it is no bigger limitation than it is for liquid crude. ---
**Author:** ![Try2B\_Comprehensive](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/try2b_comprehensive/32/65_2.png) [@Try2B\_Comprehensive](https://boards.straightdope.com/u/Try2B_Comprehensive)\ **Post date:** [June 16, 2009, 6:50am UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/25 "2009-06-16T06:50:28Z")
> [@Blake](#): > > Nope. Shale oil uses about 3bl of water for each bl of crude. In contrast oil wells use about 8 bls of water. So this limitation is just more true of liquid crude than it is of shale. > > Added to that there’s lots of water in the ocean and in saline aquifers and it has no further use to humans. Perhaps in the unique case of mountainous and landlocked Colorado that provides a limit, but for most of the world’s oil shale it is no bigger limitation than it is for liquid crude. If you are correct, than that spells good news for oil shale. Still, peak oil may remain a problem. Soon after the peak of US oil discoveries, peak US production was predicted- about a 30-year lag. The predictions were accurate. The world reached it’s peak of new oil discoveries about 30 years ago. There’s a lot of data behind this assertion. Still, maybe there are more factors to consider on the global scale, and in the present case. But then, in the present case there is also global warming… ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [June 16, 2009, 7:01am UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/26 "2009-06-16T07:01:18Z")
> [@IdahoMauleMan](#): > > I missed this. Britain (as in the government) missed a coupon payment? Are you sure, Sam? > > Or was an offering undersubscribed? > > I knew the latter had happened, but not the former. I misspoke. You’re right - it was undersubscribed. ---
**Author:** ![Rune](https://avatars.discourse-cdn.com/v4/letter/r/e68b1a/32.png) [@Rune](https://boards.straightdope.com/u/Rune)\ **Post date:** [June 16, 2009, 8:40am UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/27 "2009-06-16T08:40:54Z")
> [@Voyager](#): > > When you were a kid, did you yell “Daddy, are we there yet?” a block from home? Because that’s what this post sounds like. > Bush took eight years to ruin the country. Give Obama a little bit of time to fix it. I’m sure I was. We didn’t have a car though. And when you see the town drunk go from beer to vodka, do you say: “give it a little bit of time, it might work”? My problem with taking on an astronomic extra debt burden to fix an economic problem created by previous years irresponsible debt taking isn’t that it hasn’t worked _yet_. > [@MOIDALIZE](#): > > Inflation isn’t even close to being a problem at this point. _Deflation_ is the problem. As Voyager says. Give it time. It’ll come. Good thing too perhaps. It’s now the only realistic method by which you’ll ever be able to bring you debts to a manageable level. ---
**Author:** ![Quartz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/quartz/32/267_2.png) [@Quartz](https://boards.straightdope.com/u/Quartz)\ **Post date:** [June 16, 2009, 10:48am UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/28 "2009-06-16T10:48:59Z")
> [@Try2B\_Comprehensive](#): > > The world reached it’s peak of new oil discoveries about 30 years ago. There’s a lot of data behind this assertion. Really? Then I’m sure you can provide it. I suppose it depends upon how you define your terms. New fields are still being discovered, and there’s lots of the world left to survey. For instance, we have barely begun to investigate the polar regions, and we still don’t know how much oil is around the Falklands. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [June 16, 2009, 4:09pm UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/29 "2009-06-16T16:09:20Z")
> [@Rune](#): > > I’m sure I was. We didn’t have a car though. And when you see the town drunk go from beer to vodka, do you say: “give it a little bit of time, it might work”? My problem with taking on an astronomic extra debt burden to fix an economic problem created by previous years irresponsible debt taking isn’t that it hasn’t worked _yet_. You said he hasn’t delivered the change yet - if the economy has improved by the end of the year, will that meet your definition of change? I appreciate that lots of people are worried about the deficit, but lots are worried that backing off the stimulus package now will bring us back to the brink of depression, or drive us over the brink. People are definitely not as gloomy as they were 6 months ago. Obama has delivered change, just not results yet, because it is too soon. ---
**Author:** ![raspberry\_hunter](https://avatars.discourse-cdn.com/v4/letter/r/b19c9b/32.png) [@raspberry\_hunter](https://boards.straightdope.com/u/raspberry_hunter)\ **Post date:** [June 16, 2009, 4:22pm UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/30 "2009-06-16T16:22:41Z")
> [@Voyager](#): > > You said he hasn’t delivered the change yet - if the economy has improved by the end of the year, will that meet your definition of change? Yes. If the economy has improved by the end of the year, instead of doing the death spiral of Fed-failing-at-quantitative-easing/interest-rates-rising/foreclosure-debt-mayhem I expect later in the summer/early fall, I will say to everyone I’m now telling to sell stocks and not buy real estate that I was wrong to be skeptical and that my understanding of economics clearly leaves a lot to be desired. (Which could be true. This whole thing left a lot of people who know a lot more about economics than I do completely blindsided.) Although another thing I worry about is the possibility that the stimulus might help… for a year, or two… and make things worse in the long run. (I firmly believe that the whole housing bubble – that I think was encouraged by Bush and Bernanke – made things worse than if we had had this recession at that time instead of rushing into the housing bubble first, but your opinion may vary.) And I think that if that happens, it’ll be very hard to tease out whether the stimulus actually helped or hurt. I mean, people are still arguing about the New Deal. ---
**Author:** ![Lemur866](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lemur866/32/434_2.png) [@Lemur866](https://boards.straightdope.com/u/Lemur866)\ **Post date:** [June 16, 2009, 5:05pm UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/31 "2009-06-16T17:05:41Z")
> [@Try2B\_Comprehensive](#): > > Still, maybe there are more factors to consider on the global scale, and in the present case. But then, in the present case there is also global warming… Two words: Fischer-Tropsch. The cost to convert coal into liquid hydrocarbons is the absolute ceiling for oil prices. It’s much cheaper to pump crude oil out of the ground and refine it into liquid fuels than it is to convert coal into liquid fuels. When that’s no longer the case then we have enough coal to power our cars and tractors for another couple hundred years. The only problems are the externalities associated with coal mining–CO2 and sulfur and etc emissions, dead coal miners, and so on. If the fuel portion of your transportation bill doubled or tripled or quadrupled or quintupled in the next couple of years that’s not good, but it sure isn’t a Mad Max scenario where we’re killing each other for the last drops of petrol. ---
**Author:** ![Lemur866](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lemur866/32/434_2.png) [@Lemur866](https://boards.straightdope.com/u/Lemur866)\ **Post date:** [June 16, 2009, 5:10pm UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/32 "2009-06-16T17:10:36Z")
One more thing. The collapse of the housing bubble is _good_. It would have been better to not have it in the first place, but it’s better that we’ve punctured it rather than having it continue. We were like the guy who finds an old violin in the attic with “Stradivarius” written on it, who figures he’s now rich. Well, when he takes the violin in for appraisal and the guy tells him “Stradivarius” was written with a sharpie, did he really lose a million dollars? No, he hasn’t lost anything–unless he started racking up debts that he figured he could repay when he sold his violin. The sooner he finds out that he doesn’t really have a Stradivarius the better. Expensive housing isn’t good. Inexpensive housing is good, because people can afford it. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [June 16, 2009, 7:33pm UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/33 "2009-06-16T19:33:51Z")
> [@raspberry\_hunter](#): > > Yes. If the economy has improved by the end of the year, instead of doing the death spiral of Fed-failing-at-quantitative-easing/interest-rates-rising/foreclosure-debt-mayhem I expect later in the summer/early fall, I will say to everyone I’m now telling to sell stocks and not buy real estate that I was wrong to be skeptical and that my understanding of economics clearly leaves a lot to be desired. (Which could be true. This whole thing left a lot of people who know a lot more about economics than I do completely blindsided.) This is such new territory that no one knows for sure what to do. Krugman’s last column talked about cases where the stimulus was eased up on before there was a real recovery - with another recession the immediate result. > [@](#): > > Although another thing I worry about is the possibility that the stimulus might help… for a year, or two… and make things worse in the long run. (I firmly believe that the whole housing bubble – that I think was encouraged by Bush and Bernanke – made things worse than if we had had this recession at that time instead of rushing into the housing bubble first, but your opinion may vary.) And I think that if that happens, it’ll be very hard to tease out whether the stimulus actually helped or hurt. I mean, people are still arguing about the New Deal. I think you need to blame Greenspan, not Bernanke. By keeping interest rates low, and encouraging the bubble, he managed to increased consumption despite wage stagnation. If he had let rates rise there would have been another, milder, recession before this one. Maybe if the bubble had burst a year earlier AIG and those other knuckleheads wouldn’t have been as over committed, but I’m not sure. Obama’s economic team seems to be thinking about ways of changing the fundamental rules of regulation, and aren’t just providing stimulus to let us go back to normal. We’ll see how fundamental the proposed changes are. ---
**Author:** ![zenith](https://avatars.discourse-cdn.com/v4/letter/z/e19b73/32.png) [@zenith](https://boards.straightdope.com/u/zenith)\ **Post date:** [June 16, 2009, 8:00pm UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/34 "2009-06-16T20:00:37Z")
> [@Lemur866](#): > > One more thing. The collapse of the housing bubble is _good_. It would have been better to not have it in the first place, but it’s better that we’ve punctured it rather than having it continue. > > We were like the guy who finds an old violin in the attic with “Stradivarius” written on it, who figures he’s now rich. Well, when he takes the violin in for appraisal and the guy tells him “Stradivarius” was written with a sharpie, did he really lose a million dollars? No, he hasn’t lost anything–unless he started racking up debts that he figured he could repay when he sold his violin. The sooner he finds out that he doesn’t really have a Stradivarius the better. > > Expensive housing isn’t good. Inexpensive housing is good, because people can afford it. Agreed! Now back to the question of whether this economy has hit bottom yet, my opinion, based solely on personal observations, is that the crisis is deepening. Malls are losing tenants. Freestanding stores, including "depression-proof "Walmart seem emptier than they were. Though Walmart’s pharmacy was definitely jammed the last time we need to fill one of those $4 generic prescriptions, the rest of the store was as quiet as Kmart was 2 months prior to its Store Closing sale announcement. You could actually park close-in. Sears just closed in my little 'burb and the closing sale wasn’t nearly as well-attended as K-marts was, a few years back. I see really attractive homes go unsold for months, with owners then changing realtors, then putting up _For Rent By Owner_ signs. Popular restaurants are now only half-full at noon. Car dealers’ lots are jammed with unsold units. Gas prices are going back up, so the publications I deliver to racks in these places have more takebacks as people just run their $20 through the bill-changer on the pump, get gas, and go. The convenience store end of these businesses, where the real money is made, is hurting. Gas retailers HATE high gas prices. I see zero sign of recovery, thus far. ---
**Author:** ![Merijeek](https://avatars.discourse-cdn.com/v4/letter/m/f05b48/32.png) [@Merijeek](https://boards.straightdope.com/u/Merijeek)\ **Post date:** [June 16, 2009, 8:03pm UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/35 "2009-06-16T20:03:50Z")
Economy Ed (Puxatawnee Phil’s brother - he didn’t go into meteorology) is currently cautiously sticking his head out of his hole. If there are no major bad news items in the next three to six months, things will be recovering well. If we suddenly hear that Ford is about to collapse or that Citi just found a really bad ledger behind the fridge…Ed is going to go catatonic in the corner for a while. We’ll see. -Joe ---
**Author:** ![Lunar\_Saltlick](https://avatars.discourse-cdn.com/v4/letter/l/977dab/32.png) [@Lunar\_Saltlick](https://boards.straightdope.com/u/Lunar_Saltlick)\ **Post date:** [June 16, 2009, 8:29pm UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/36 "2009-06-16T20:29:02Z")
> [@Voyager](#): > > …I think you need to blame Greenspan, not Bernanke. By keeping interest rates low, and encouraging the bubble, he managed to increased consumption despite wage stagnation. If he had let rates rise there would have been another, milder, recession before this one. Maybe if the bubble had burst a year earlier AIG and those other knuckleheads wouldn’t have been as over committed, but I’m not sure. … You’ve got to blame Bernanke for at least part of it. When the credit markets started to freeze up in August 2007, he slashed interest rates massively – outside of a regularly scheduled meeting, if memory serves – and the party went into overdrive for another year. I sometimes think that if Bernanke hadn’t done that, we’d all be a lot better off now. The recession wouldn’t have been quite as bad, there would have been one year less of ridiculous borrowing and lending, AIG and others might not have been in quite as bad shape, we might already be past the worst of it, and the worst of it wouldn’t have been quite as bad. As it is, it’s worse than it needed to be, and it’s still got at least a year to run. Of course, hindsight and all… If only the credit markets had frozen up at the end of Greenspan’s run and Bernanke just said: Tough. Let’s get the recession over with now… ---
**Author:** ![Huerta88](https://avatars.discourse-cdn.com/v4/letter/h/82dd89/32.png) [@Huerta88](https://boards.straightdope.com/u/Huerta88)\ **Post date:** [June 16, 2009, 8:35pm UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/37 "2009-06-16T20:35:25Z")
> [@Lemur866](#): > > One more thing. The collapse of the housing bubble is _good_. It would have been better to not have it in the first place, but it’s better that we’ve punctured it rather than having it continue. Some are arguing that we haven’t really let it burst, and may be gearing up for Part Deux. > **[Depression Porn: The New Taxpayer-funded Subprime Market No One Wants You To...](http://exiledonline.com/subprime-the-second-coming-now-with-a-100-taxpayer-backed-guarantee/)** > > Everything the real estate industry tells you is a hustle. No industry is more geared toward pumping up the positive and burying anything remotely negative, leaving you — and truth — out in the cold. The crash has not made... ---
**Author:** ![Lantern](https://avatars.discourse-cdn.com/v4/letter/l/d26b3c/32.png) [@Lantern](https://boards.straightdope.com/u/Lantern)\ **Post date:** [June 16, 2009, 8:38pm UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/38 "2009-06-16T20:38:17Z")
This is an excellent [article](http://www.ft.com/cms/s/0/0e151612-4fa8-11de-a692-00144feabdc0.html)by renowned FT columnist Martin Wolf analyzing recent trends in the financial markets particularly the bond markets. I think he does a pretty good job of puncturing some of the alarmist analysis coming out from right-wing writers. The charts in particular are especially helpful. ``` If I have the time I may go into it in greater detail but basically variables like 10-year yields have risen but only to relatively normal levels that prevailed before the panic of late 2008. The same goes for the implied inflation rate from the difference between ten-year treasuries and ten-year TIPS which is now 2% : pretty much the inflation targets of most major central banks. Note that since markets are forward looking this means that they don't anticipate a significant increase in inflation over the next ten years. The bottom line is that current policies aren't leading to some kind of macroeconomic catastrophe. They will have to reversed some point down the line as the economy recovers but it's far too premature to talk about reversing the stimulus. That is the kind of policy blunder which lead to the 1937-38 recession. ``` ---
**Author:** ![raspberry\_hunter](https://avatars.discourse-cdn.com/v4/letter/r/b19c9b/32.png) [@raspberry\_hunter](https://boards.straightdope.com/u/raspberry_hunter)\ **Post date:** [June 16, 2009, 11:53pm UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/39 "2009-06-16T23:53:45Z")
> [@Lantern](#): > > This is an excellent [article](http://www.ft.com/cms/s/0/0e151612-4fa8-11de-a692-00144feabdc0.html)by renowned FT columnist Martin Wolf analyzing recent trends in the financial markets particularly the bond markets. I think he does a pretty good job of puncturing some of the alarmist analysis coming out from right-wing writers. The charts in particular are especially helpful. > > ``` > If I have the time I may go into it in greater detail but basically variables like 10-year yields have risen but only to relatively normal levels that prevailed before the panic of late 2008. The same goes for the implied inflation rate from the difference between ten-year treasuries and ten-year TIPS which is now 2% : pretty much the inflation targets of most major central banks. Note that since markets are forward looking this means that they don't anticipate a significant increase in inflation over the next ten years. > > ``` Hmm. I couldn’t get to this article (I think I hit my max). So does this analysis say anything about option-ARMs recasting, and how the banks are going to deal with the resulting foreclosures? Or about continuing deflation due to credit unwinding? It is true, I do read one kind of crazy right-wing alarmist guy (Karl Denniger)… but… I really think he might be crazy like a fox, if you look at how many of his predictions for [2008](http://ticker-classics.denninger.net/archives/12-The-Year-In-Review-And-a-Look-Ahead-for-2008.html) (scroll down to the bullet points) were spot on, and how many of his [2009](http://ticker-classics.denninger.net/archives/35-Where-We-Are,-Where-Were-Heading-2009.html) predictions (again, you have to scroll down quite a ways) are already coming true. Was Martin Wolf right about all those things? I know of very few other people who have that kind of track record over the last two years (though there are some). And yeah, I don’t disagree that Greenspan was also complicit. ---
**Author:** ![Lantern](https://avatars.discourse-cdn.com/v4/letter/l/d26b3c/32.png) [@Lantern](https://boards.straightdope.com/u/Lantern)\ **Post date:** [June 17, 2009, 5:27am UTC](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791/40 "2009-06-17T05:27:16Z")
Denniger appears to be predicting deflation which is the opposite of what some right-wing commentators have been warning about. Wolf is addressing concerns about possible inflation and government crowding out of private investment: > [@](#): > > So what is the disagreement? Prof Ferguson made three propositions: first, the recent rise in US government bond rates shows that the bond market is “quailing” before the government’s huge issuance; second, huge fiscal deficits are both unnecessary and counterproductive; and, finally, there is reason to fear an inflationary outcome. These are widely held views. Are they right? > > The first point is, on the evidence, wrong. The jump in bond rates is a desirable normalisation after a panic. Investors rushed into the dollar and government bonds. Now they are rushing out again. Welcome to the giddy world of financial markets. > > At the end of December 2008, US 10-year Treasury yields fell to the frighteningly low level of 2.1 per cent from close to 4 per cent in October (see chart). Partly as a result of this fall and partly because of a surprising rise in the yield on inflation-protected bonds (Tips), implied expected inflation reached a low of close to zero. The deflation scare had become all too real. > > What has happened is a sudden return to normality: after some turmoil, the yield on conventional US government bonds closed at 3.5 per cent last week, while the yield on Tips fell to 1.9 per cent. So expected inflation went to a level in keeping with Federal Reserve objectives, at close to 1.6 per cent. Much the same has happened in the UK, with a rise in expected inflation from a low of 1.3 per cent in March to 2.3 per cent. Fear of deflationary meltdown has gone. Hurrah! > > It is true that spreads between conventional US bonds and bonds issued by Germany and the UK have narrowed (see chart). But US yields were extraordinarily depressed during the panic. Normality returns. > > If inflation expectations are not worth worrying about, so far, what about the other concern caused by huge bond issuance: crowding out of private borrowers? This would show itself in rising real interest rates. Again, the evidence is overwhelmingly to the contrary. > The most recent yield on Tips is below 2 per cent, while that on UK index-linked securities is close to 1 per cent. Meanwhile, as confidence has grown, spreads between corporate bonds and Treasuries have fallen (see chart). One can also use estimates of expected inflation derived from government bonds to estimate real rates of interest on corporate bonds. These have also fallen sharply (see chart). While riskier bonds are yielding more than they were two years ago, they are yielding far less than in late 2008. This, too, is very good news indeed. [Previous page](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791.md?page=1) [Next page](https://boards.straightdope.com/t/state-for-me-the-case-that-were-economically-nowhere-near-out-of-the-woods/499791.md?page=3)