PPP vs. Market rate based GDP

from the Economist: 15 Nov 2007

US Ten Year Treasury Yield 2005 to 2007

From the Economist 22 Nov 2007

The Russian Crisis flight to quality being repeated in the U.S. at the short end of the curve ?

And How the Fed is responding to it!

How a Panicky Day Led the Fed to Act – WSJ.com

“Banks remain well-capitalized and profitable. But they appeared reluctant to provide credit to companies, issuers of commercial paper and even each other, perhaps out of uncertainty over the safety of their customers or their collateral.”

“Eventually, Fed officials agreed to reduce the rate charged on loans from the discount window (to 5.75% from 6.25%) and try to reduce the usual stigma associated with such loans. By making these direct loans to banks more attractive, the Fed hoped to reassure banks that they could borrow if they needed to — without the usual penalty to their bottom line or to their reputation — and thus make them a bit more willing to lend in normal fashion.”

“What they came up with is pretty ingenious.” Investment banks or hedge funds that hold mortgage-backed securities can’t borrow from the Fed directly, but they can bring those securities to banks. In turn, the banks can offer the paper as collateral to the Fed for a 30-day loan.

The Fed “really wanted to drive home the point that if [bankers] were complaining about not being able to borrow money against liquid, high-quality securities — mortgages — we have no more basis for complaint. We were all given a clear message,”

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