Dear grfiv,
There was indeed a startling fluctuation in the nominal yield rates of
T-bills in the late 1970s and early 1980s, but not in the direction
that your chart describes. It seems your data was corrupted somewhere
in the transition from web page to spreadsheet. I suspect that the
decimal point slipped back one digit for the interest rates over 10%,
appearing to suggest that yield rates were one-tenth their true values
at precisely the time when they began soaring.
Let me describe the process by which I reconstructed and verified a
chart of nominal annual yield rates for the 1-year, 5-year, and
10-year Treasury bonds.
First, I downloaded the following files, containing official Federal
Reserve statistics on the nominal yield rates from 1962 to 2003,
inclusive.
Federal Reserve Statistical Release: Historical Data: Treasury
constant maturities: Nominal: 1-year
http://www.federalreserve.gov/releases/h15/data/a/tcm1y.txt
Federal Reserve Statistical Release: Historical Data: Treasury
constant maturities: Nominal: 5-year
http://www.federalreserve.gov/releases/h15/data/a/tcm5y.txt
Federal Reserve Statistical Release: Historical Data: Treasury
constant maturities: Nominal: 10-year
http://www.federalreserve.gov/releases/h15/data/a/tcm10y.txt
I then compiled these data into a single file using a custom-made
text-extraction and text-manipulation script, without any manual
intervention whatsoever, so as to preclude human error. I saved the
result as a CSV (Comma-Separated Value) file which you should be able
to import into the spreadsheet of your choosing.
http://plg.uwaterloo.ca/~mlaszlo/answers/rates.csv
I next opened the CSV file with the OpenOffice document-management
package, which includes a charting component similar to Microsoft
Excel. I read the years into Column A of a spreadsheet and the 1-year,
5-year, and 10-year nominal yield rates into Columns B, C, and D,
respectively.
Then, I assigned Column A to the vertical axis of a chart and the
remaining three to the horizontal axis, specifying that these be
plotted as line graphs. I exported the result into an Excel-type file
that should again be compatible with your own spreadsheet software.
http://plg.uwaterloo.ca/~mlaszlo/answers/rates.xls
Finally, I made a screen capture of the line chart and saved this as a
PNG (Portable Network Graphic) file so that you may immediately view a
visual depiction of the nominal yield rates of T-bills from 1962
through 2003.
http://plg.uwaterloo.ca/~mlaszlo/answers/rates.png
The chart shows that after a gradual climb from 3 percent to 8 percent
over a decade and a half, the nominal interest rates abruptly shot up
in the late 70s, reaching a peak in 1981 before plunging down below
ten percent over the course of the 80s. Perhaps not coincidentally,
Ronald Reagan took office in 1981.
"Reagan had inherited an economy with high inflation and unemployment
from President Jimmy Carter (1976-1980), and his economic theories are
claimed by his supporters to have eventually led to a strong
recovery."
"The large, across the board tax cuts initiated by Reagan at the start
of his administration were based on principles from supply side
economics or the trickle down effect. This was contrary to the demand
side economics of traditional Keynesianism, which tries to bring the
economy to its existing full capacity by means of increasing demand,
primarily through fiscal policy. In the 1970s, many on the right
became critical of Keynesianism, which they claimed brought higher
inflation without any gains in employment."
Wikipedia: Reagonomics
http://en.wikipedia.org/wiki/Reaganomics
As for the increase itself, that can be clearly traced to the
galloping inflation of the 1970s. Increased inflation necessarily
leads to higher interest rates as the value of securities rises at the
same time as the prices of goods and services.
"In the United States, annual price increases of less than about 2% or
3% are not considered indicative of serious inflation. During the
early 1970s, however, prices rose by considerably higher percentages,
leading President Nixon to implement wage-and-price controls in 1971.
Stagflation?the combination of high unemployment and economic
stagnation with inflation?became common in the industrialized
countries during the 1970s. The costs of the Vietnam War and the
social programs of the Johnson administration, plus the oil prices
increases in 1974 by the Organization of Petroleum Exporting Countries
(OPEC), contributed to U.S. inflation. By the end of the 1970s the
Federal Reserve raised interest rates in an attempt to reduce
inflation. Following a recession in the early 1980s, there was renewed
growth, somewhat lower interest rates, and a decrease in the inflation
rate."
InfoPlease: inflation
http://www.infoplease.com/ce6/bus/A0825192.html
For a technical study of the phenomenon, consult the following document.
University of California at Berkeley: Brad DeLong: The Inflation of the 1970s
http://econ161.berkeley.edu/Econ_Articles/theinflationofthes.html
I hope that my answer tells you just what you wanted to know. If not,
please post a Clarification Request so that I have a chance to meet
your needs before you assign a rating.
Regards,
leapinglizard |
