It's a Debt Party

Here's what will be auctioned next week.

$24 billion in 13-week treasury bills.
$25 billion in 26-week treasury bills.
$44 billion in 2-year treasury notes.
$42 billion in 5-year treasury notes.
$32 billion in 7-year treasury notes.
$11 billion in 5-year TIPS.

That's $178 billion.

As much as it pains me to say this, I will be buying some of the 5-year TIPS. I'll be getting a very poor interest rate. I just can't think up any safer place to park money that I know I will need in 5 years.

Homework Assignments for Monetary Policymakers

A related issue, which I'll assign for extra credit, is critical for the conduct of policy in the future. Some observers have attributed the bubbles observed in some asset prices in recent years to a decades-long downward trend in real interest rates. In this view, the decline in interest rates has caused investors to reach for yield by purchasing riskier assets with higher returns, driving the prices on riskier assets above fundamental values.

You think?

Many central bankers and economists, myself included, were a little complacent coming into the crisis. We thought we knew enough about the basic structure of the markets and the economy to achieve economic and price stability with relatively minor perturbations. And we thought we had the tools necessary to deal with liquidity shortages and maldistributions. The reality is that we didn't understand the economy as well as we thought we did.

You think?

See Also:
Our Safe & Sound Banking System