I read in the news today about something called the yield curve- a graph that measures interest rates against bond maturity dates. A normal curve has steep short-term yields which flatten out toward longer term ones, generally signifying a growing market. An inverted one typically occurs before a market crashes, when short-term yields (interest rates) are higher than long-term ones. The news story claimed that the yield curve has started to invert, meaning that a recession will be imminent in the next couple years.
The inversion is thought to be caused by a lack of confidence in market stability by investors, spearheaded by entities like the Federal Reserve maxing out interest rates and seeing them plummet when the demand is no longer there.
The graph is an elegant illustration of the cycle that generates the market. There can be no such thing as a stable, predictable market in a capitalist system where loans are given to people at such exorbitant rates as the current housing market demands. It happened 10 years ago; it will happen again. The market is a pendulum of doubt and confidence, propelled the emptiness of a greedy quarter of the economy (and the most important) that should be far more regulated by the government. The Dodd-Frank act wasn't enough; more laws are needed to keep home prices at fair values.
The yield curve is special in that it has predicted every recession in the U.S.A. since 1970. Why aren't we learning from what happened in the past? Why aren't we listening? Do the recessions only work for the people who hold all the cards?
No comments:
Post a Comment