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> Whoops According to the data, not really. Short-term mortgage rates increased steadily for the next several years; long-term rates also ticked up, but not by

> Whoops According to the data, not really. Short-term mortgage rates increased steadily for the next several years; long-term rates also ticked up, but not by as much. He basically refinanced his home exactly at the bottom [1]. [1] http://www.bankrate.com/finance/mortgage-rates-history-0112.aspx http://www.bankrate.com/finance/mortgage-rates-history-0112....

crdoconnor 10y ago
I think we need to change the scales and put it in context: http://mortgage-x.com/images/graph/fhfb_contract_rate.gif http://mortgage-x.com/images/graph/fhfb_contract_rate.gif According to the data, yes really.
- bildung 10y ago
  Your graph shows the same as the one from smallnamespace: 2003 was a good year to refinance because rates were at a bottom.
  - crdoconnor 10y ago
    Krugman's bet - in his own words and using ISLM - was that interest rates would skyrocket because of deficit spending on the Iraq war in 2003. He paid extra to make this bet. Where on that graph did rates skyrocket exactly?
    - bildung 10y ago
      From the article: "And as that temptation becomes obvious, interest rates will soar. It won't happen right away. With the economy stalling and the stock market plunging, short-term rates are probably headed down, not up, in the next few months, and mortgage rates may not have hit bottom yet. But unless we slide into Japanese-style deflation, there are much higher interest rates in our future." (emphasis mine) That's pretty much what happened: http://www.gridgit.com/postpic/2011/09/us-inflation-rate-historical-chart_259737.png http://www.gridgit.com/postpic/2011/09/us-inflation-rate-his... Inflation doubled from 2002 onwards, then the housing bubble popped, causing inflation to fall. Thankfully not into a long-term deflationary spiral, though.
      - crdoconnor 10y ago
        "unless we slide into Japanese-style deflation" Yeah, that was the best part. "This is going to be awful. It's going to happen. Unless, that is, the exact opposite of what I'm betting on happening actually happens".
- ScottBurson 10y ago
  If the 2008 crisis hadn't happened, do you really think interest rates would be where they are now? I think it's easy to imagine a very different tail on that curve post-2008, which would have left the 2003 low intact. If you're asking Krugman to have predicted the 2008 crisis in 2003, I think that's a bit much.

crdoconnor 10y ago

I think we need to change the scales and put it in context: http://mortgage-x.com/images/graph/fhfb_contract_rate.gif http://mortgage-x.com/images/graph/fhfb_contract_rate.gif According to the data, yes really.

bildung 10y ago
Your graph shows the same as the one from smallnamespace: 2003 was a good year to refinance because rates were at a bottom.
- crdoconnor 10y ago
  Krugman's bet - in his own words and using ISLM - was that interest rates would skyrocket because of deficit spending on the Iraq war in 2003. He paid extra to make this bet. Where on that graph did rates skyrocket exactly?
  - bildung 10y ago
    From the article: "And as that temptation becomes obvious, interest rates will soar. It won't happen right away. With the economy stalling and the stock market plunging, short-term rates are probably headed down, not up, in the next few months, and mortgage rates may not have hit bottom yet. But unless we slide into Japanese-style deflation, there are much higher interest rates in our future." (emphasis mine) That's pretty much what happened: http://www.gridgit.com/postpic/2011/09/us-inflation-rate-historical-chart_259737.png http://www.gridgit.com/postpic/2011/09/us-inflation-rate-his... Inflation doubled from 2002 onwards, then the housing bubble popped, causing inflation to fall. Thankfully not into a long-term deflationary spiral, though.
    - crdoconnor 10y ago
      "unless we slide into Japanese-style deflation" Yeah, that was the best part. "This is going to be awful. It's going to happen. Unless, that is, the exact opposite of what I'm betting on happening actually happens".
ScottBurson 10y ago
If the 2008 crisis hadn't happened, do you really think interest rates would be where they are now? I think it's easy to imagine a very different tail on that curve post-2008, which would have left the 2003 low intact. If you're asking Krugman to have predicted the 2008 crisis in 2003, I think that's a bit much.