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Where’s the Fear?

07/28/2011

The TED Spread is the relationship between Treasury bond rates and the London Interbank Offered Rate (LIBOR).  Another way of saying it is the relationship between lending to the U.S. government and lending to the banks.  It has been a reliable predictor of financial crisis in the past, having been as high as 470 basis points in 2008.  As you can see from this table it is about 19 now. More importantly, it has been falling recently, suggesting no financial crisis is looming.  I have great respect for the wisdom of the bond market and believe there will be no financial crisis next week.
One-Year Chart for TED Spread (.TEDSP:IND)

Of course, that does not mean the world will be the same.  Change is coming.  Austerity is coming.  It won’t be fun, but we will survive.  And, our grandchildren will be better off.

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