Friday, January 06, 2006

Does a Dead Body Mean a Serial Killer Is On the Loose?

The other day I blogged on the inverted yield curve and the irrational confusion of correlation and causality associated with the phenomenon. A Bloomberg TOP story, a news story no less, faults the Bush administration for not confusing the two. The story is titled, "Bush, Who Follows Market Signs, Pays Little Heed to Yield Curve." The clear implication is that Bush chooses to focus only on data that support his view, a theme we've heard before. The story expresses amazement that administration officials are touring the land touting the strong economy (after all, today's Labor Dept. release shows unemployment at 4.9%), when the yield curve has inverted ever so briefly. Bloomberg corrals a number of economists and analysts to bolster this amazement, with the prevailing view that the economy simply must hit the skids soon. No sign of any economist, like these guys, who say differently in the first two-thirds of the article.

Then, in their typically minimalist nod to fairness, after you page down four screens, the story does end with the grudging admission that the administration could "probably" be right. They reference Treasury Secretary John Snow who makes the same point that yours truly made in my original blog post, that previous inversions which preceded recessions happened at much higher rate levels. (At least they mention that Snow has a PhD in economics, which is more than most other media outlets admit.)

There is simply not a whole lot of persuasive evidence that supports the prediction of recession. A moderation or a slowdown of the economy is the best that a pessimist can do, and even this argument rests on speculation of retrenchment in consumer spending in the absence of mortgage refinancing.

Sometimes a dead body is just a dead body, not a portent of anything more. You would think that an outfit like Bloomberg could offer up a more incisive and insightful analysis of the yield curve's relationship to the broader economy. Sigh.


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