Economics Update (a Day Late)

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TIPS Spread


US Trade Deficit, h/t Calculated Risk

Notwithstanding all the chest pounding by folks claiming that the, "recession is over," consumer sentiment is continuing to fall, with the Reuters/University of Michigan Surveys of Consumers falling to 66.0 in November, from 70.6 in October.

It also looks like real estate is in the same bind, with the US Home Purchase Index falling to a 9-year low last week, on concerns that the about what was going on with the new home buyer tax credit.

Basically, this is showing that the only thing keeping the home market from falling further, is massive government support.

We have some good news on inflation, unless you are like me, and see a period of sustained inflation as a way to monetize debts paralyzing our economy.

Paul Krugman has looked at the TIPS Spread, (top pic) basically the spread between the interest demanded by bond buyers on Treasury Inflation Protected Securities (TIPS), and regular Tressuries, and notes that recent widening of the gap between the two interest rates is because the rates for TIPS has fallen, as opposed to the rates for normal treasuries having gone up, which is kind of the opposite of what you would expect if the bond market was pricing in inflation.

In terms of international trade, we are seeing that the GDP of the Euro Zone has gone positive, and the US trade deficit jumped in September, (bottom pic) both of which indicate improvements in international commerce.

Basically, this news drove the dollar down, because traders were less interested in a safe haven, and oil fell to $76.35/bbl on Thursday's strong inventory numbers.