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Source link: http://archive.mises.org/5936/yield-curves-and-the-business-cycle/

Yield curves and the business cycle

November 26, 2006 by

For anyone interested, the full version of the article which includes thoughts on the role of the yield curve – updated to take account of the feedback to my earlier blog on this issue – can be found here on Lewrockwell.com

{ 4 comments }

Siggyboss November 26, 2006 at 10:37 am

Sean Corrigan,

Based on your article the yield curve has become so distorted, due to currency speculation and foreign exchange intervention by governments, it no longer serves as a reliable indicator of a coming recession/depression. I agree with reservations. How did you determine that real short-term rates have not risen and that there is no direct evidence of credit restriction? Falling profits are muddled by constant modifications of US GAAP and the temporary low tax rates for repatriation of overseas profits; biased toward multinational corporations.

Lastly, do you have an alternative to the yield curve in mind?

M E Hoffer November 26, 2006 at 1:45 pm

Mr. Corrigan,

I thought that your article was well turned.

This: “What may be a less commonplace observation is one which rests on the propositions we have tried to advance in the course of this article; namely, that the speculator who wants to stand out from the Herd will be greatly assisted in his quest if he conducts his own, entrepreneurial-style assessment of the opportunities and uncertainties which face him resolutely and exclusively from within the correct – and uniquely Austrian – framework.”–leads me to wonder if “arbitrageur” should replace “speculator”. I’m getting the sense that today’s (v. yesteryear’s) “speculator” is more aptly described by the term “plunger”–one who takes risks solely, not necessarily calculated, if at all, well.

Also, “arbitrageur” plays, well, off “entrepreneur”, and one could make the ready case that “the Herd” is doing nothing but “speculating”–in its easiest motif: when was the last time one saw Put options within in a 401(k) account(?)

Past that, actually a small point of note, your article should be easily understood and well grasped by those with the least bit of yearning to remain whole in this gamed game we gamely call: an Economy. You do well by offering this thread to help: mend the rend of the less fortunate, stitch a protective coat for the fortuitous, or, found in fables, if not here, fashion a flag for the foresighted.

RogerM November 27, 2006 at 11:27 am

Very interesting! I can see some of the effects of loose money in the oil industry when higher oil prices encouraged companies to drill for more oil, but they’ve had a terrible time hiring labor to man the rigs.

It also may be showing up in income disparity. The left frequently complains that the only group seeing real income growth is the upper quintile, and gov stats seem to show they’re correct. If so, it could be because the upper quintile gets the new money first. In that case inflation really does take from the poor and give to the rich.

Does anyone have advice on reading more in depth about capital structure? Should I attempt Hayek’s “Pure Theory of Capital,” Roger Garrison’s “Time and Money: Macroeconomics of Capital Structure” or Huerta de Soto’s new book “Money, Bank Credit, and Economic Cycles?”

adi November 27, 2006 at 12:18 pm

RogerM, Hayek’s book seemed to be pretty difficult when I browsed through it last spring.

Capital theory, interest and investments are not covered very well in modern mainstream economics.

RogerM, you could also look if Hicks book Capital and Time or Capital and Growth give you any new information about these issues.

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