Make no doubt about it — thats precisely what Alan Greenspan said about the "puzzling decline" in long-term rates.
In the past, a decrease in yield on the 30 year was a signal of upcoming economic weakness. The Fed Chair argued that "they aren’t as reliable a signal of such weakness as in the past."
You see, "its different this time."
But is it really? We looked at the 4 factors impacting rates, and some things have changed: Most prominently, the incredibly dumb decision to stop issuing 30 year bonds. But the rest of the forces we see impacting bonds: global labor arbitrage with Asia exporting wage deflation, as well as the Asian purchases of Treasuries — are long standing factors.
So why believe that its "different this time?" The WSJ suggests:
Since June 2004, the Fed has raised its short-term rate target to 3% from 1% and has signaled plans to raise it further, while the 10-year Treasury bond yield has fallen to less than 4% from 4.7%. That sort of decline in long-term rates "is clearly without recent precedent," Mr. Greenspan said via satellite to the International Monetary Conference, a meeting of bankers from around the world, in Beijing.
You know what else is clearly without recent precedent? A Fed trying to manage their way through a post-bubble environment by hyper stimulating growth via ultra-low interest rates and increased money supply.
Why the Fed Chief has invoked 9/11 as the reason for putting the world awash in liquidity, he should consider the only thing different this time is him and the Federal Reserve.
The last comparable bubbles — 1929 in the U.S. and Japan in 1989 — didn’t see the massive liquidity inflows this Fed geenrated — nor the problems the "Free Lunch" ultimately creates.
I do not advocate a return to the Gold standard like Greenspan’s Objectivism hero (Ayn Rand) favors — but I have to admit that I see their point. This massive manipulation of the global economy by the U.S. Central Bank has the potential to be enormously disruptive.
Here’s the accompanying graphic:
Spread: 10-Year Treasury Bond Less Fed Funds Rate (3-month Moving Average)
Greenspan Casts Doubt on Import of Falling Rates
THE WALL STREET JOURNAL, June 7, 2005; Page A2
Yield Curve Message – It’s Different This Time?
Paul Kasriel, Asha Bangalore
Northern Trust, June 08, 2005
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.