Yet rising short-term rates did not lead to the expected increases in long-term rates. That was a problem, because the Fed very much wanted mortgage rates to go up in order to take some air out of an inflating housing bubble. This phenomenon, in which short and long rates become delinked, has been labeled "Greenspan's conundrum", and Matthew Boesler warns that it may soon return to afflict Janet Yellen's Fed.
It is really that bad
About that debt
First, the Bank of Japan dramatically scaled up its quantitative easing programme in response to weak growth and inflation figures. Then, new data revealed that the Japanese economy shrank at a 1.6% annual pace in the third quarter, when growth had been expected. That decline was the second quarterly contraction in a row, putting Japan in a technical recession. And today Shinzo Abe, the prime minister, called snap elections with an eye toward building a mandate to postpone an imminent rise in Japan's consumption tax. The consumption tax rise is part of a strategy designed to get Japan's government debt under control; Japanese government debt is now above 240% of GDP and the government continues to run deficits of around 8% of GDP per year.