After a little additional thought, I discovered that my Death Spiral Warning Graph post can be improved through the isolation of the expected inflation component of US 10y yields provided by the US 10y yield – US 10y TIP yield. Unfortunately, it more accurately reveals the cost of aggressive US Fed monetary policy, and I think offers a more dire assessment of the limits of this policy.
The gains we have experienced seem much more transitory and spurious than a simple chart of the S&P 500 reveals.
#get data from St. Louis Federal Reserve (FRED)
getSymbols(“DGS10″,src=”FRED”) #load 10yTreasury
getSymbols(“DFII10″,src=”FRED”) #load 10yTIP for real return
getSymbols(“DTWEXB”,src=”FRED”) #load US dollar
getSymbols(“SP500″,src=”FRED”) #load SP500
#new FED monetary policy limit monitor
#US10Y TIP Breakeven Inflation divided by the US Dollar
#old favorite is US 10y Nominal divided by the US Dollar
colnames(fedpolicytest)<-c(“US10yTIPInflationDivByUSDollar (new favorite)”,”US10yDivByDollar (old favorite)”)
main=”US Monetary Policy Test-Does Bernanke Have a Limit?”,colorset=c(“cadetblue”,”darkolivegreen3″),ylab=””,
event.lines=”2008-07-02″,event.labels=”July 2, 2008″)
#add label to denote new recent high
#label previous high