Philadelphia Reflections

The musings of a physician who has served the community for over six decades

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Stefania D'Amico, Don Kim, and Min Wei has just brought out an International Finance Discussion Paper, entitled Tips from TIPS, on behalf of the United States Federal Reserve Board. That they would go to the trouble of printing what amounts to a series of tables about ten-year bond volatility is a sign that the Fed is worried about the failure of interest rates to go up in response to rising despite trillions of dollars worth of Treasury bond issuance to combat the COVID virus. Gurus from both parties have become famous for saying interest rates were related to unemployment rather than indebtedness or possibly the GDP. Both Maynard Keynes and Milton Friedman must be rolling in their graves. I gave some consideration to this idea on a cruise with the late Alice Rivlin and rejected it. Both of us, much lesser representatives of the two sides, considered the matter too settled to dare to explore it.

There is a concern that this unexpected upset of settled truths might be somehow related to the lack of metal backing for the currency, or that we have somehow stumbled onto issues beyond our imagining. That everyone could be so wrong for so long was hard to believe. After all, the issue which prompted it was, although serious, not particularly uncommon. It isn't surprising that there is more bad guessing ten years head of proof of where intest rates would end up than ten years closer to the facts.

Originally published: Tuesday, August 11, 2020; most-recently modified: Wednesday, August 12, 2020

 

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