LadyRuby wrote:I'll admit I don't really understand this yield curve business. Any economists out there care to give me a "yield curve for dummies" lesson?
Me too. I read the guide to yield curves and I think I might have it figured out.
A yield curve is a prediction of how much return can be expected from payments that accrue interest.
A yield curve normally rises because in the long term interest rates are set to rise steadily so therefore there will be a steady yield.
When the curve flattens or inverts then it means that you are moving closer to a situation where interest rates will be high in the short term but low in the long term. This means that high interest rates will curtail consumer spending and the housing market (both forms of credit which involve repayment through interest rates obviously
The outcome will be a massive reduction in the demand for credit which can only be alleviated by lowering interest rates in the long term to try and entice consumer spending and other economic activities that rely on low interest rates to prosper.
I'm a beginner at economics too but I think thats the gist of it. Though it's bound to be more complex than that.
"The age of excess is over. The age of entropy has begun"