econlog.econlib.org - 11/2/2009
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(November 2, 2009 08:40 AM, by Arnold Kling) Paul McCulley writes, a bull flattening bias of the Treasury curve, with longer-dated rates falling toward the near-zero Fed policy rate, can be viewed as a consensus view that the level of the output/unemployment gap plumbed during the recession is...
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Arnold Kling on the Bond Bubble
CrossingWallStreet.com —
Arnold debates the marekt:
Markets: With so much unemployment and excess capacity, we cannot possibly have inflation.
Kling: Do you not remember the 1970's? Furthermore, you may be over-estimating the excess capacity. An excess capacity to sell houses and trade securitized debt may not help absorb demand in other sectors.
Markets: The Fed has no plan to raise interest rates. Therefore, interest rates cannot rise.
Kling: The Fed merely determines the composition of government debt. The amount of government debt ...
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