7 6 8 5 9 79 80 81 82 83 84 85 86 87 88 - WKUpeople.wku.edu/brian.goff/ba 511 Macro Finance...
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Transcript of 7 6 8 5 9 79 80 81 82 83 84 85 86 87 88 - WKUpeople.wku.edu/brian.goff/ba 511 Macro Finance...
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U.S. Debt -- right scale
Debt/GDP - left scale
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U.S. Debt -- right scale
Debt/GDP - left scale
Debt-Income
Ratio
Income Growth - Interest Rate
for PV Debt Service >=03.5 0.60%
3 -0.40%
2.5 -1.80%Assumptions: 75-year Horizon
APC = 0.80 (NIPA est.)
(Income Growth - AAA Rate) = -0.50% since WWII
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Total Debt/GDP
Non-house-govt/gdp
House-debt/gdp
Govt Debt/gdp
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Total Debt/GDP
Non-house-govt/gdp
House-debt/gdp
Govt Debt/gdp
Cheap Credit Public Sector Backing (Fannie, Freddie,
Homeownership) High Leverage (Assets/Equity) for Investment Banks
(Bear, Lehman, Merrill …) + AIG Banks Lending on 25 years of growth/repayment Foreign Investment in US
NOTARIETY BUT TOO SMALL ▪ Securitization (Collateralized Debt: CDOs)▪ Derivatives (Credit Default Swaps)▪ Market-to-Market Accounting
“TAYLOR RULE” Fiscal Policy Independence Low Inflation Levels
Fed Funds Target = 2 + Inflation Rate + 0.5*(Actual inflation –Target) + 0.5*Output Gap
Output Gap reflects Phillips Curve logic Current Values Target = 2 + 0 + 0.5(0) + 0.5(-3%) = 0.5%
Fed Funds: Influence or Response?
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DTB10Y3M DTB10Y1Y
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1980 1985 1990 1995 2000 2005 2010
DTB10Y3M DTB10Y1Y
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2008M07 2009M01 2009M07 2010M01
DTB10Y3M DTB10Y1Y
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2008M07 2009M01 2009M07 2010M01
DTB10Y3M DTB10Y1Y
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120
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1975 1980 1985 1990 1995 2000 2005 2010
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1975 1980 1985 1990 1995 2000 2005 2010
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08M01 08M07 09M01 09M07 10M01
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08M01 08M07 09M01 09M07 10M01
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1975 1980 1985 1990 1995 2000 2005 2010
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08M01 08M07 09M01 09M07 10M01
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08M01 08M07 09M01 09M07 10M01
PERSONAL LEVEL
Arrange long-term, fixed rate loans
Invest in flexible price assets Inflation-indexed Treasury
Securities (TIPS)
Commodity ETFs
Foreign Currency (preferably not tightly linked to US or EC)
Real Estate: REITs,
FIRM LEVEL
Shorten fixed price contract length
Arrange long-term, fixed rate loans
Place free cash in flexible price assets
