the visible hand

it is the theory which decides what can be observed – einstein

How to Track the Crisis

Posted by ecoshift on October 2, 2008

How to Track the Crisis – Economix Blog – NYTimes.com
September 25, 2008, 1:28 pm
By David Leonhardt

Henry Paulson, the Treasury secretary, has said that it’s more important to look at the credit market than the stock market, if you want to follow how bad (or not so bad) the financial crisis is. But how do you keep track of the credit markets? I asked my colleague Vikas Bajaj that question, and here’s what he said:

1. One key thing to watch is the direction of Treasuries – lower yields indicate greater concern about the economy and financial system. Correspondingly, higher yields for investment grade and high-yield bonds indicates less willingness to lend to businesses.

2. The Ted Spread – the difference between two interest rates, those on the three-month Libor and on the three-month Treasury bill — is an important measure of stress in the credit markets. Though there are concerns about how useful Libor is as a measure of borrowing rates, it’s still an important number. T-bills are, as we are learning, the ultimate safe haven.

3. For the consumer, these mortgage rates are critical. Mortgage rates should probably be a lot lower given the Federal Reserve’s recent actions and other interventions in the market. (Of course, rates might be even higher if the Fed and Treasury had done nothing.)

Bottom line: The situation remains serious.

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2 Responses to “How to Track the Crisis”

  1. Hm. Not very convincing.

  2. ecoshift said

    I know what you mean. All this talk about crisis… debt… fear. It sounds so wimpy.

    Bailouts. Hmmph. When I was a kid my parents lost everything and I walked 5 miles through the snow every day to get my education. And worked the farm on the weekend. We didn’t need no whiny bailouts.

    I wasn’t checking the TED spread on the internet every morning neither.

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