A frightening figure

Paul Krugman presents a frightening figure. 

The figure [below] shows the real interest rates on corporate bonds, with
the expected rate of inflation from the spread between 20-year TIPS and
20-year Treasury rates. All data monthly, from St. Louis Fed.Corporate_real

I’ve been saying for some time that one of the signs of a credit crunch has got to be rapidly rising real rates – in very recent weeks, that appears to be happening.  The timing suggests to me that this is more of a deflation problem than a banking-credit problem per se but at this point who cares – we can probably all agree it’s more bad news.

Addendum: Greg Mankiw is also troubled by what this figure means.


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