The canard of secular stagnation was laughable, especially given the credentialed gnomes belief in demand sided macro thought. No measure is ever given to the antecedents of our Constitutional Republic, its constitutive bases in civil society, in spheres of autonomy that can’t be controlled by a monolithic state, nor the strengthening of these mystic bonds of memory by digital technologies eccentric impact. All of this is ignored in the need to evade. Secular stagnation was the polite way of saving ‘not my responsibility‘, yet it has patrimony with Bernanke’s ‘savings glut‘ and Greenspan’s ‘conundrum‘.
The greatest threat to the U.S. Federal Reserve Keynesian gnome is the hypothesis of a natural rate of interest. The belief that their exists an independent, autonomous, objective reality of personalism that isn’t dependent on central bank wiles threatens Keynes and his cohorts. Even still, any look at the U.S. equities makes one shrill upon glancing upon our yield curve.
Our yield curve is flattening, and by any measure, reveals a startling fact that cannot be ignored. We’re at the limit of both credibility and efficacy in monetary policy. This is why the partisans of monetary reform are correct to admonish Congress for a commission on new standards replacing Humprey Hawkins.
The yield curve is the difference between ten year and two year interest rate. An inversion of the yield curve in U.S. sovereign bonds means that the interest paid on longterm bonds is below the short term. This has happened immediately before the past seven U.S. recessions.
Socially, studying the yield reveals where the market believes its going or where policy should be aiming. The Fed’s dirty secret is its fear of rising wages and prices.
Regarding credibility. Let me say this: Q.E. was supposed to have worked by compressing the term premium paid by those who buy U.S. sovereign bonds instead of spending or consuming. Instead, it drove up the cost and value of hard assets like commercial property and agricultural commodities.
Here’s where partisans of monetary reform win: we believe that the best explanation of the flattening of the yield curve is that U.S. domestic market participants no longer believe the Federal Reserve has any credibility left. We’ve lost confidence in the Fed’s ability to handle inflation via its target of interest rates.