The following commentary does not necessarily reflect the views of AgWeb or Farm Journal Media. The opinions expressed below are the author's own.
Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.
The Kansas City Federal Reserve issues a monthly report on their index of the US Financial Stress. The most recent one issued on August 8, 2012 had an index level of -.13 essentially unchanged from the June level of -.11. Negative levels indicate that there is less stress than a normal level of 0 and a positive number would indicate more stress.
For example, during the "Great Recession" of 2008-09, the level peaked out at about 6 (which is 6 Standard Deviations, not six times) Other than this time period, the index toggled between +1 and -1 from 1990-2007 and from 2010 to now. The least amount of stress occurred during 1991 to 1998 and from 2004-2006.
11 components make up the index. 8 of them are based upon yield spreads and 3 are based upon behavior of asset prices. The changes of each component for the month of July ranged from -.06 to .07.
Although not directly to farming, these indexes provide guidance on where the financial markets are headed which will affect lending and interest rates.
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