March 6, 2021

Economix Blog: Podcast: Bonds, Markets, the Economy and History

The markets are being whipsawed. How severe has the volatility been? One statistic tells the story: for the first time in its history, the Standard Poor’s 500-stock index moved up or down by at least 4 percent on four consecutive days.

In the new Weekend Business podcast, I talked to Floyd Norris and Julie Creswell, two veteran financial reporters for The Times, about the turmoil in the markets. Ms. Creswell has been covering the impact on individual investors and says many have been rushing to sell their stock holdings.

Of course, selling in a downturn is not always the best approach, Mr. Norris pointed out, especially if markets rise again soon. A big issue at the moment is whether we are experiencing a repeat of the 2008-9 crisis, when markets fell far more steeply than they have in recent weeks, or whether the current situation is more benign. Unfortunately, there are no firm answers.

One reason for the plunge in asset values is a global economic slowdown. In a separate conversation on the podcast, Christina Romer, an economist at the University of California, Berkeley, says the Great Depression and World War II supply some important lessons for dealing with the current crisis. In the Economic View column in Sunday Business, she says that expansive monetary and fiscal policy worked well back then to promote economic growth. In addition, the United States took on a far heavier debt load in the war years than it has so far, and still managed to pay it down when the economy was stronger.

Reconciling economic stimulus with a prudent long-term fiscal policy can be done again, she says, but the logic for these intertwined approaches needs to be conveyed forcefully to the American public.
I also chatted with Steve Lohr, a Times technology reporter, about a new approach to corporate social responsibility. In the Unboxed column in Sunday Business, he says academic theorists are proposing a concept known as shared value, in which companies profit by taking on tasks that result in public good. One example is General Electric’s “ecomagination” program, in which the company has invested in technology to lower the energy consumption of its products and to reduce the use of water and other resources in manufacturing. The company says its sole motive has been profit; the social benefits are ancillary.

And in another podcast conversation, Phyllis Korkki interviewed me about the implications of the downgrading of United States Treasury debt, the subject of my Strategies column in Sunday Business. Treasury bonds have been the linchpin of the world financial system, and the center of myriad calculations in business, portfolio construction and capital markets. The 10-year Treasury yield has been plugged into countless algorithms as the putative “risk-free rate of return,” against which other cash flows are compared. Now, the rate for a risk-free investment may need to be approximated, and the center of the global financial structure seems much less solid than it was just a few years ago.

You can find specific segments of the podcast at these junctures: Floyd Norris and Julie Creswell (37:06); news headlines (27:41); Steve Lohr (23:14); Christina Romer (16:01); Strategies column (8:51); the week ahead (1:57).

As articles discussed in the podcast are published during the weekend, links will be added to this post.

You can download the program by subscribing from The New York Times’s podcast page or directly from iTunes.

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