Economic Apocalypse Data for 10/10/2008

Oct 10th, 2008 | By | Category: Economics

Ladies and gentlemen, I want metrics.

In the spirit of objectively tracking the downfall of the global economy, I’ve decided to begin a semi-regular post conglomerating data on the (non-)functioning of the financial system. If I’m going to panic, I want evidence backing it up.

Rather than focusing on the stock market (equity), like most daily coverage of this crisis, I’m going to focus on liquidity. The inability of companies, big and small, to borrow seems the most likely thing to impact people on a day-to-day basis. (For those of you seeking to retire shortly, well, this might not be the case. My apologies. You can read about the implosion of the stock market elsewhere.)

I’ve included the TED spread, US bond yields, Corporate bond yields, and a spread of the two I’ve crafted. If you know of an index that you think I should include here, please let me know. I fully admit I’m out of my depth here. Instruct me, and I’ll modify the post. A ton of data is available. Help me coalesce it into something coherent.

I’ve also included a subjective “beaker scale of economist panic” based on my sense of relative state of fear on experts writing about the crisis. As I get a set of objective data together, I plan to make this a calculated value–an SI-unit of doom.

What this means to you
TED Spread 4.62 (up 0.384 or 9.064%)

(Source: Bloomberg.)
Lower is better. The TED spread is a rough measure of how scared banks are to lend out their money, even to one another. The higher the TED spread, the harder it is for you or your employer get a line of credit. Lines of credit are crucial for almost all companies to function.
Treasury Yield Curve
3-month: Down -0.275
6-month: Down -0.159

2-year: Up 0.079
5-year: Up 0.083
10-year: Up 0.091
30-year: Up 0.029

(Source: New York Times.)

The lower the yield in the short term, the more frightened investors are of investing in anything beyond “risk-free” governmental treasury debt. The higher the long term debt yield, the more concerned investors are about the financial health of the US Government.
Corporate Bond Yield
(Source: New York Times.)
Higher is bad. The higher the yield, the more expensive it is for companies to borrow money to finance their operations.
Mattress Index: Spread of Corporate Bond yields to short term US government treasury yields Investment Grade Corporate Bonds spread to 3-month and 6-month US treasury debt yield: 834.4 bp

High Yield Corporate Bond spread to 3-month and 6-month US treasury Debt yield: 1981.4 bp

Higher is bad. The higher this ratio, the more risk adverse investors are. If money is flowing into “risk-free” short-term US government treasuries rather than companies, it will be increasingly difficult for the private sector to function.
Subjective Panic Level

Some worthwhile posts by actual economists, or people who know more about this than I:

Here’s a metaphor on the $700 billion dollar purchase of toxic debt from banks, with the option of bank takeovers by the government.

CalculatedRisk is freaking out even more than I am about the growing TED spread.