Illustrating some of life's more thrilling moments ...
Meanwhile...
jwr wrote:I think the 30 year U.S. treasury is a screaming buy here.
Hmmm ... I wouldn't go that far personally. It
may be a relatively safe short-term (two years) place to park some cash, if you keep an eye on it. After all 2.7% is better than the current rate of return on cash, and the real return ... well, who knows, do you?
If you do, know, then you might be wise to invest all your money, as well as any money you can borrow in HTD.TO.
jwr wrote:...there's zero chance of default since they're printing the money to pay everyone back right now and they own the printing presses!
It's not only ownership of the printing press that matters. It's also having the ability, and the will, to keep interest rates low, for as long as needs be.
ISTM the Canadian, US, UK and Australian Governments are beginning to express this will loudly and clearly. The rest (mainly the big two Euro zone nations) may eventually be forced to hop on the bandwagon.
IMO four horsemen presently loom large in the future economic shadows of the developed world: unemployment, debt, entitlements, and, the need to foster continued growth in developing economies (E.G. BRIC). ISTM the powers that be in these developed nations have collectively (especially in the Anglo sphere) decided to buy their way out of these problems. Hopefully, they would only do this if they had some kind of plan to deal with the possible consequences. ISTM the common-sense solution, the one best mitigating the dangers inherent in these problems, is low interest rates - for a long, long time.
By reducing repayments low interest rates will assist these governments to print or borrow the capital needed to create jobs; to stimulate industrial output; improve public infrastructure and stabilize their economies.
Long-term low interest rates will eventually reduce the psychological and real burden of personal and other indebtedness, in the face of asset deflation, and will allow a gradual increase in liquidity. For example, we may soon see credit card companies being forced to reduce their interest rates, thereby reducing the burden of credit card debt on consumers, thereby gradually increasing consumption.
Low interest rates, along with much tighter controls on commodity price and other speculation (the results of which methinks we are seeing in the energy and other commodity markets today), will force headline inflation to stay low, and may result in negative overall inflation for years. This would reduce the government burden for pension and other entitlements which, starting very soon (2011 at the latest), are going to commence increasing at an exponential rate. Also, BTW low interest rates will significantly diminish the retirement incomes of the boomer cohort, many of whom may be forced to subsist likewise, because they can only get 2% or 3% yield on their investments. In any good plan there has to be a sacrificial lamb, and in this plan ISTM the boomers, especially the lower middle class boomers, have been tapped for the role.
Low interest rates, improved liquidity and economic stability (through effective controls on price speculation) in the developed world will ensure governments in countries like India, China and Russia can continue to develop at an acceptable rate. This continued development will enable these governments to continue improving the lives of their people and reduce the likelihood of internal economic, political and social unrest.
IMO the last point is the single most compelling reason to keep interest rates low in the developed world until the present economic crisis is thoroughly fixed; because history shows us that internal economic, political and social unrest almost inevitably lead to war, and in a nuclear armed world low interest rates, high debt and impoverished boomers are preferable to low-yield ground and high-yield air burst tactical and strategic nuclear weapons exchanges over the Hindu Kush.
Then again, I may be wrong and it's not different this time. Perhaps, next year the global economy will stabilize; unemployment will fall drastically throughout the developed world; oil will go above $150 and the TSX will hit 20,000; Treasury rates will shoot up, right across the curve; inflation will come roaring back; those who are today crippled with indebtedness will suddenly feel an incredible lightness of being wealthy again, as the value of their assets (homes, stocks, cars etc) shoots up; the boomers will once again agonize over Tuscany or Provence; and the speculators will be welcomed back into the markets, encouraged to re-commence their efforts to suck the marrow from the very bones of all the other suckers. Perhaps ... but I'm from Missouri.