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Wednesday, March 12, 2008

"The Ted Spread is Not Yet Dead "

Ah, here's something. From Paul Krugman:

Mission not accomplished — not yet, anyway, by Paul Krugman: Is it fair to judge the Fed’s plan yet? No, not in either direction. The big stock rally yesterday reflected investors’ belief that it might work — or maybe investors’ belief that other investors would believe that it would work — rather than an actual demonstration of effectiveness.

  TED spread not yet dead

This chart shows a less favorable indicator — the TED spread, the difference between the interest rate on three-month Treasury bills and three-month LIBOR, the rate banks charge on loans to each other. The TED spread is an indication of lack of trust in financial markets; its widening was a sign that things were going bad. And the spread has only narrowed a bit since the Fed’s action. Now, for the most part the Fed hasn’t actually done anything yet — just announced its intention to do stuff — so this is an unfair indicator too.

So we’re still up in the air. But I have to say that I wanted to see more action in the chart above.

If it doesn't work (but hope it will), what should the Fed do next? My answer is here.

    Posted by on Wednesday, March 12, 2008 at 12:01 PM in Economics, Housing, Policy | Permalink  TrackBack (0)  Comments (5)


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