The “Lesser” Depression or a Return to Growth?

For some time, J. Bradford DeLong has been referring to the current economic episode as the “Lesser Depression.” He has now dropped the “Lesser.” His evidence from the bond market is worth reviewing (in particular, the yield on 30-year Treasuries). His conclusion: we may be looking at “a slack and depressed economy, if not for the next generation, at least for most of it.”

At the same time, as the Hill reports, the OECD projects “that U.S. gross domestic product would grow at a 3.5 percent clip in the year’s first quarter and 2 percent in the second quarter,” viewing the slow growth rate of 0.4 percent in the fourth quarter of 2012 as being the product of “one-off factors.”

Given the choice (the bond markets vs OECD forecasts) I would normally bet on the markets. But, given the Fed’s extraordinary interventions in the past few years, can we really trust information we glean from the bond markets?

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