The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.
- BLS Handbook of Methods
- Bureau of Economic Analysis
- Bureau of Labor Statistics
- Congressional Budget Office
- Economic Data - FRED® II, St. Louis Fed
- Office of Management and Budget
- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
October 09, 2008
How high is financial risk today?
On a day as brutal as today, it is hard to find any port to hide from the storm. Maybe that is exactly the time for some perspective. At Businomics Blog, Bill Conerly does his best (hat tip, Mark Thoma), making a point that I have heard repeated more than a few times: Taken from the long view, many measures of risk that we take as symptomatic of extreme market stress are not entirely without historical precedent. Dr. Conerly uses this graph of the “TED spread”—the 3-month Libor rate minus the yield on 3-month Treasury bills—to drive the point home:
Here are a couple more graphs on the same theme: The spread between 3-month LIBOR rates and the effective funds rate (which I emphasized in an earlier post)…
… and the spread between yields on commercial paper and secondary-market 3-month Treasury bills.
Comforting? Maybe not. As Conerly notes, your perceptions of the ugliness of the past month or so depends very much on what you believe to be the appropriate reference point. In the context of the period spanning the 60s and 70s the measures of risk and market stress depicted in these charts are not so impressive. However, if you believe that the world fundamentally changed in the 1980s—at the outset of the so-called “Great Moderation”—things are very dysfunctional at the moment.
For my part, I can’t help but recall the following exchange from the movie “No Country for Old Men” after two characters come across a gruesome murder scene.
Deputy Wendell: “It’s a mess, ain’t it sherriff.”
Sherriff Ed Tom Bell: “If it ain’t, it’ll do until the mess gets here.”
In other words, no matter what you compare it with the current environment is plenty challenging.
By David Altig, senior vice president and research director, Federal Reserve Bank of Atlanta
TrackBack URL for this entry:
Listed below are links to blogs that reference How high is financial risk today? :
- GDPNow's Second Quarter Forecast: Is It Too High?
- Are Small Loans Hard to Find? Evidence from the Federal Reserve Banks' Small Business Survey
- Slide into the Economic Driver's Seat with the Labor Market Sliders
- The Fed’s Inflation Goal: What Does the Public Know?
- Going to School on Labor Force Participation
- Bad Debt Is Bad for Your Health
- Working for Yourself, Some of the Time
- Gauging Firm Optimism in a Time of Transition
- Can Tight Labor Markets Inhibit Investment Growth?
- More Ways to Watch Wages
- May 2017
- April 2017
- March 2017
- February 2017
- January 2017
- December 2016
- November 2016
- October 2016
- September 2016
- August 2016
- Business Cycles
- Business Inflation Expectations
- Capital and Investment
- Capital Markets
- Data Releases
- Economic conditions
- Economic Growth and Development
- Exchange Rates and the Dollar
- Fed Funds Futures
- Federal Debt and Deficits
- Federal Reserve and Monetary Policy
- Financial System
- Fiscal Policy
- Health Care
- Inflation Expectations
- Interest Rates
- Labor Markets
- Latin America/South America
- Monetary Policy
- Money Markets
- Real Estate
- Saving, Capital, and Investment
- Small Business
- Social Security
- This, That, and the Other
- Trade Deficit
- Wage Growth