I have refinaced my 30 year mortgage twice in the past 4 years. Why is the Federal Government so late to the party?

Since we are in a low interest rate environment that will not go on forever, this was long overdue.

Real interest rates are at historic highs.

That's because we have a lot of real debt.

Not in historical terms.

OJ,

Real interest rates are negligible today as inflation is running about 3% per annum and the 10 yr note is at 4.23%. Historically, there is about a 4 point spread between the two.

Debt as a percentage of GDP is about 75% which is high but far from unsustainable. If we have an expanding economy we should be cutting our deficit though, not increasing it. Also, when interest rates go up, because since the Clinton Administration so much of our debt is in short term securities, our debt service could get really ugly.

"It was a surprise," said Lundy Wright, who runs the Treasury desk at Nomura Securities International, after the 9 a.m. announcement by the Treasury Department prompted a sharp sell-off in the bond market that cost some traders and investors millions.

Boy, sucks to be them, huh?

bart:

Inflation is nowhere near 3%. Even Greenspan has testified it's overstated by a full point. In reality it's more than that. We're in a deflationary climate with rising interest rates, which often leads to disaster.

So it's two points and real interest rates are still low.

You are right about the effects of deflation as the imminent collapse, or at least long-term stagnation, of the real estate market is going to be a serious economic issue. If Congress were being more fiscally responsible, I'd feel better about sending Luca Brazzi to give Greenspan an offer he couldn't refuse concerning ending the Chinese water torture of rate increases.

No, given deflation it's over 4.

There is inflation in the marketplace, OJ. Don't you buy gasoline or meats?

I buy meat when it's expiring--it's dirt cheap--and don't drive much. Inflation measures don't account for normal consumer behavior.

OJ what would you know about normal consumer behavior?

The TIPS market says the real rate is about 1.6%. That is cheap. Very cheap.

According to the Federal Reserve system, inflation is in the general vicinity of 2%, probably more. Even with OJ's statement that we should take 1% off that, that still means inflation is 1%. This is not deflation. Also, inflation's trend is upward, as I believe the FOMC mentioned in their announcement Tuesday.
Data: ww.ny.frb.org/research/national_economy/nationalindicators.html

Thus, Robert, the LT Treasuries should be at about 5-6% not the low 4s. IOW, it's time to start selling those 30 yr securities, refinancing the shorter term debt.

Tom:

Greenspan has testified that they're mismeasuring and guessed by 1%. their numbers are a joke.

Come on, OJ. Is Greenspan The Guru or not?

Tom:

Not at all. Fed chairmen should be under the age of 30 or else they fight a "problem" that ended 40 years earlier.

OK, OJ.

We can't have someone running monetary policy who's been a major player over a few iterations of the business cycle can we? That was just embarassing.

bart:

Exactly. The guys who were young in the Depression gave us runaway inflation because they worried about jobs and Greenspan kills off jobs fighting an inflation that ended twenty five years ago. the Fed Chairman should be fresh out of college.