House of Paine

delong bails

 a flash of candor 
from 
delong on
the exchange rate      
        interest rate
               interaction
              
  his money quote
paraphrased :

" our model is dead wrong "




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 " a public in writing
      admission of  ignorance"


first the pangloss 
back fable:

"investors, recognize
 the dollar is overvalued
 and that they are likely 
 to suffer large losses
 when it returns to its fundamental value
so they  start selling their Treasury bonds,
 corporate bonds, and mortgage-backed securities."

" As the prices of these assets fall,
 their yields  rise
  and At some point
 the yields on bonds and mortgages 
 will be high enough 
that investors’ appetite for yield
will balance their fear 
of exchange-rate depreciation"

admission:

"In the corridors around my office,
 all the economists agree 
that reality of a dollar  overvaluation
  should have pushed U.S. interest rates up
three years ago."

" so far it has not
this likely  means 
 uz  economists’
 baseline model 
of the international economy
              is simply 
               dead  wrong"

" in particular
  the assumption 
i like to call

         the iron law
              of
  “uncovered interest parity,”

 which  states  :

 'foreign interest income 
expressed in the domestic currency 
     should  tend to equal
   the domestic interest rate '  "

----- nice to know 
they know they don't know shit 
  even if they won't 
               shutter  up
              their wizzard shop 
                             drive by   windows ----- 


folks :

"they" 
 haven't got  a decent working model
of the world market 

get the drift ?????

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