The continuing rise in Treasury yields means the Fed is losing money on the first leg of its $300 billion, 6-month plan for purchasing Treasurys, as well as its purchase of various mortgage-backed securities. Combine that with about $10 billion in unrealized losses from the toxic assets on its balance sheet courtesy of Bear Stearns and A.I.G., and the central bank is well on its way to reporting a loss for the first time in its history, according to IMF economist Peter Stella.
GM and Citi are dropped from the Dow. Which of course means it's time to buy GM and Citi. J.P. Morgan analysts say expected mild inflation should be good for stocks. Retailers downsize by shedding plus-sized clothing lines. James Surowiecki: The great Buenos Aires coin shortage. The Fed outlines its TARP repayment conditions. --Zubin Jelveh
Treasury yields are surging again today, no doubt adding fuel to the debate over whether the Fed's "credit easing" policies are working. The good news is that today's rise can probably be pinned on promising data out of the construction and manufacturing sectors, as Bloomberg suggests. Still, those who read the rise in rates since March as a sign that investors are worried about inflation and/or ballooning deficits are unlikely to quiet down.
The bond market vigilantes are back. The FT's John Authers worries about the mortgage market. U.S. corporate defaults in '09 already equal last year's total. Why piling on tons of student debt might not be the best idea. Recessions reduce the number of divorces, but not unhappy marriages. --Zubin Jelveh
Amid the speculation that inflation fears are driving up long-term interest rates, Paul Krugman spends today's column trying to defuse the anxieties. Krugman argues that the Fed isn't really expanding the money supply the way the inflation hawks allege, and that U.S. policymakers don't seem particularly keen on resorting to inflation to lower the government's debt burden.
Wired profiles Google chief economist Hal Varian. Is the Geithner plan DOA? What Keynes got right, and what he got wrong. Why is the G20 meeting in Pittsburgh? An activist investor bets against the future of ratings agencies. -- Zubin Jelveh
Economics blogs are abuzz over the fact that the slope of the yield curve is at a record high. The difference between the yields on 2-year and 10-year Treasuries hit 2.75 percent yesterday topping its previous high of 2.74 in 2003, according to Bloomberg. As many, including myself, have pointed out, when the yield curve steepens like this, it’s usually a sign that the economy will be humming within 12 months. But there’s good reason to think that this time it’s different.
Problem banks at their highest level since 1994, says the FDIC. WSJ: Financial woes has some towns thinking of dissolving. IEA: Look for the energy crunch to return when economies recover. The return of Gordon Gekko. Gloomy indicator of the day: the price of Latvian hookers. --Zubin Jelveh
Declining lending standards, greedy bankers, short-sighted consumers, slow-moving regulators, low interest rates, and the securitization process have all at one time or another been blamed for the subprime crisis. And to that list we can now add China's one-child policy. A number of economists and public officials, including former Treasury Secretary Henry Paulson, have pointed to rising global imbalances as playing a seminal role in the creation of a global credit bubble.
Greg Mankiw is shocked at how little Sotomayor has saved. Employer-based healthcare keeps between 20% to 50% of people from switching jobs. Bloomberg: The big banks notch a win on derivatives regulation. Open source hits Wall Street. --Zubin Jelveh