Sunday, September 25, 2011

Is Paul Krugman Getting Schooled by EPJ?

On June 4, the Krug wrote:
Thanks to inflation-protected securities, we can look at real rates directly...
On the same day, I jumped all over his comment:
Paul Krugman has really done it this time. Today, he discusses Treasury TIP Securities and displays an ignorance that a first year bond trader would be fired for having...The point is that there are a number of reasons a TIP security can go negative, none having anything to do with the real interest rate.
I have technical explanations (here and here).

Krugman discusses inflation-protected securities at NYT, today, but he is much less cocky about the possibility of looking at "real rates directly", he adds a number of qualifiers that in a general way recognize my criticisms of his original incorrect view that TIP securities allow for the absolute measure of real rates (my emphasis):
I look a fair bit at bond market “breakevens” — the difference in interest rates between regular bonds and inflation-protected bonds of the same maturity, which give a measure of inflation expectations. It’s not a perfect measure by any means, since there are issues of risk and liquidity, and anyway what bond investors expect isn’t necessarily reasonable.
That's progress, Paul. You have a long way to go, but in the public schools you are so fond of  I think a teacher would give you a tap on the head and say, "Very good, Paulie. Much improvement."

1 comment:

  1. So basically what he is saying: "I look at indicators of inflation that are not good indicators of inflation"

    At least he realizes he is being an idiot... now if only he can stop.