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.
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.