The 67 economists taking part in a regular Bloomberg survey have a unanimous forecast regarding treasury bond yields: they will be higher 6 months from now. Additionally, not a single economist taking part in a separate survey believes an economic downturn is possible.
Needless to say, this should strike fear into the hearts of bond bears and anyone with lingering faith in “the recovery.” Just to underline this, the Bank of England’s new chief economist (remember the BoE just admitted that banks don’t lend deposits, notwithstanding Krugman, Bernanke and Yellen) now admits (PDF) that the DSGE models so loved by the Fed and the whole Keynesian tribe are useless.
The crisis has also laid bare the latent inadequacies of economic models with unique stationary equilibria and rational expectations. These models have failed to make sense of the sorts of extreme macro-economic events, such as crises, recessions and depressions, which matter most to society….
In this light, it is time to rethink some of the basic building blocks of economics.
There is no excuse for hanging massive intervention on models that don’t work – whether it be of the economy or, of course, the global climate. Faith doesn’t cut it.