Wednesday, February 12, 2014

ZIRP: Great Depression vs. Great Recession

The following chart compares the 3-month treasury bill yield in the aftermath of the Great Depression to the 3-month treasury bill yield in the aftermath of the Great Recession.

Click to enlarge.

For the record, I am not predicting World War III (nor would I expect it to even remotely solve our long-term ZIRP problem as effectively as World War II did).

I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones. - Albert Einstein

I think you can see why I might be fond of ultra long-term inflation protected treasuries and I-Bonds. You might also understand why I might be somewhat skeptical of rising interest rate theories.

I believe we are trapped in ZIRP much like Japan has been since their housing bubble popped in the early 1990s (which will become all too apparent when the next recession hits, whenever that is).

We might temporarily escape from our padded cell at some point, but we'll never get the straight-jacket off, much less get past the search lights, the dogs, the barbed wire fences, and Janet Yellen, our trusted security guard. That's just asking too much, lol. Sigh.

Gallows humor.

February 11, 2014
Janet Yellen to Emerging Markets: Good Luck

Monetary policy is hard enough without having to worry about the spillover effects to other countries that should take care of themselves.

Contrary to the opinion of those who think the stock market continues to go up easily from here and that vast riches await those willing to swing for the fences at any price, monetary policy is hard. For what it is worth, that's what I'm reading into what she has to say anyway.

This is not investment advice.

Source Data:
St. Louis Fed: 3-Month Treasury Bill: Secondary Market Rate
NBER: US Business Cycle Expansions and Contractions


Troy said...

My thesis.

blue is total wages, red is total non-fi debt, 1964 = 100.

green is 3 mo treasuries, right scale.

green can go up if & when blue & red reconverge.

The weird thing is that I'm 99% certain I'm going to move back to Tokyo this decade.

pretty cool aerial footage of the metropolis. (An hour-long flyover costs $5000 to book, so I'll have to settle for this for now).

The agglomeration of wealth in Tokyo and environs is simply stunning, and what they DON'T have there, unlike similar urbanizations, is millions of poor people / "no-go" areas.

The smallest building you can spot in that video is worth $2M or more, the bigger ones are worth a used CVN (billions). Multiplying that out over the hundreds of square miles of urbanization is mind-boggling.

Japan has the top NIIP, and is pretty decent on a per-capita basis too.

One nasty tectonic slip could take it all out I guess, and they're getting due.

But I'd rather be in Tokyo than the PNW or LA when their respective big ones hit.

Stagflationary Mark said...


green can go up if & when blue & red reconverge.


Check out this variant of your chart. I'm combining your wages and non-fi debt into a ratio.

Spooky. The last 5 years are especially interesting.

I don't think I shall brace for the end of ZIRP any time soon. But what's new?

Who Struck John said...

Escaping ZIRP is like getting out of a gulag - there's always this difficulty with the second and third parts of the plan. "Okay, we're out of the prison, now we slog 1500 miles through the snow to the hostile Chinese border and then sneak across." Good luck with that!

Stagflationary Mark said...

Who Struck John,

Yes! Gulagtimism!

That optimistic feeling one has when one first escapes the Gulag.

Guard: "He made it 2 miles before we caught him again. His gulagtimism was misplaced."


mab said...

Monetary policy is hard enough without......

What's so hard about it? Seriously. You set an interest rate, BFD!

Yellen's record as a member of the Fed has been disastrous. She ignored trillions in fraud and completely underestimated the effects of said fraud. And yet, she gets promoted rather than fired. Hard???? Anyone can be incompetent!

QE is a useless policy. I can only conclude it's a deliberate attempt to dupe the majority.

Yellen has pledged to continue Bernanke style monetary policy. Just great. Those policies have been sooooo effing successful at crushing Main St. Who wouldn't continue them?

Our entire Congress is a bunch of bought-off stooges.

The beatings will continue!

Stagflationary Mark said...


What's so hard about it? Seriously. You set an interest rate, BFD!

It is hard! Just look at the new formula. Few realize how much it has changed over the years.

LMFFR = Last Month's Fed Funds Rate
TMFFR = This Month's Fed Funds Rate

TMFFR = ((4^2 x 5^3 x LMFFR^2) / 2000)^0.5

Sure, it reduces down to...


But that's not the point. A lot of work goes into it!! ;)

mab said...

A lot of work goes into it!!

Apparently, that's all that matters.

Our financial system is proof that we've improved upon the Peter Principle.

Just about everyone involved gets to rise way past their level of (in)competence.

Stagflationary Mark said...


I think you nailed it.

The more financially complex something is the "better" it is. Matters not if it actually works or not, lol. Sigh.

Stagflationary Mark said...

Financial Activities Employees per Capita

There can be only one!

Forehead. Desk. Whack. Whack. Whack.