Memo To Political Bloggers: Please Stop Writing About Economics; You Really Suck At It

In: Employment Politics Source: Ritholtz US Economy

5 Mar 2012

A wonderful post over at The Big Picture that takes both liberals and conservatives to the wood shed over their abuse of economic indicators and charts that show correlation but not causation.

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Note: The comments over there are worth a read as well.

1 Response to Memo To Political Bloggers: Please Stop Writing About Economics; You Really Suck At It

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Roanman

March 6th, 2012 at 2:37 pm

The analysis at the Big Picture ain’t so hot in it’s own right, here’s a prime example right off the top of the page.

“Over at Hot Air, Ed Morrissey has argued that real inflation is in fact 8% according to an organization named the “American Institute for Economic Research.” Mr. Morrissey states that AIER’s methodology is “robust and scholarly.” There is one slight problem with this analysis (along with the “robustness” of the AIER model): the entire US Treasury market, where the 10 year treasury is trading right around 2%. You see, Mr. Morrissey, bonds are extremely sensitive to inflation. When inflation is high, bond yields have to rise to compensate investors for the loss of income. Someone who has the ability to determine whether an economic model is “robust” surely knows the interest rate/inflation relationship.

The above smug commentary fails miserably as there is presently no interest rate/inflation relationship at the moment when it comes to government debt.

Because, as many of us are aware the Federal Reserve Bank is “MONETIZING OUR DEBT”. Meaning that the Fed is buying both treasuries and agency debt through various programs, in a deliberate effort to force interest rates down and more importantly fund the government, as there is far less demand for government debt at current interest rates than there is supply.

In other words The Fed is expanding the money supply by creating/printing new money with which they then buy treasuries.

There is presently minimal arms length activity on treasuries when compared to the total monthly offerings. The Chinese are net sellers of treasuries for a while now as are the Japanese and oil producing countries.

Evidently the author of this piece is unaware of all of this.

If the Fed doesn’t print, my guess is that interest rates rise to between 8 and 10%.

The analysis doesn’t improve much through the balance of the piece.

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