BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow...

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? I use the year-over-year change in the Fed Funds rate to forecast real durable goods consumer spending. There is a nice correlation between. So I was interested in your comments about the spread between the Fed Funds rate and 1-mo LIBOR. You mentioned the current spread of 75 basis points was a shock to our financial system. But, since 1986 the average spread between the two rates is about 60 basis points. Spreads between 1986 and 1991 were much higher than the average, then the average spread was lower throughout the 1990s, and the average spread has been even lower in the 2000s. While the current spread is higher than it has been for most of this decade, it’s not that high historically. So being relatively new to financial analysis and your blog I’m having a hard time seeing why this level of spread is such a concern? Perhaps, it is because rates are lower now than they were in the late 1980s and 1990s which makes the impact of the current spread much larger. Your thoughts? Enjoy your stuff. I’ve been tracking rates on my own for the past decade and a half and I pulled the data on 1m Libor spreads over Treasuries since you mentioned it in your column. It’s quite striking, attached. The interaction of M4, M3, the yield curve, and LIBOR both in the US and abroad are signs of an impending major market dislocation or bank failure of some kind. If this stress in not alleviated soon, we will literally be in crash conditions. On the other hand, if these conditions, most importantly LIBOR, temporarily return to normal, perhaps we have a Santa rally. Regardless of what happens in December, the problems are too many and to severe to be permanently fixed by anything other than a major recession and deflationary writedown of debt. Right now there is a big disconnect between the equity markets and the credit markets. This is not a stable situation. Perhaps we have a hint of what December will bring given a rare November stock market decline and a negative start to December. But regardless of how December concludes, the current conditions are not going to be resolved by a 50 basis point cut or even a 100 basis point cut by the Fed. We are facing solvency problems, not liquidity problems. The ability of consumers and businesses to take on credit has been stretched to the limit regardless of what the interest rate is. The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.