{"id":42554,"date":"2013-09-30T22:34:50","date_gmt":"2013-10-01T02:34:50","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=42554"},"modified":"2013-10-01T02:32:56","modified_gmt":"2013-10-01T06:32:56","slug":"us-interest-rates-and-the-living-dead","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/09\/30\/us-interest-rates-and-the-living-dead\/","title":{"rendered":"US Interest Rates and the Living Dead"},"content":{"rendered":"

By MoneyMorning.com.au<\/u><\/a> <\/p>\n

OK, I admit it. I watch the television series The Walking Dead<\/em>. If you’re not familiar with this triumph of modern Kultur, it’s a cable TV show about people battling zombies in a post-apocalyptic world. <\/p>\n

Basically, The Walking Dead<\/em>‘s premise is that an exotic disease killed off most of the world’s population, but in the process reactivated the basal sections of their brains. Now the not-entirely-deceased entities prowl the land as zombies. As a counterpoint to these ‘walking dead’ critters, an array of struggling humans battle to survive.<\/p>\n

What does this have to do with investing? Glad you asked!<\/p>\n

The Walking Dead<\/em> helps, in perhaps a peculiar way, underpin a new investment thesis. It’s all based on the Fed’s ‘dead money’ philosophy. <\/p>\n

While there may be no way of stopping the Federal Reserve’s <\/a>plague of zombie money from flooding the market, there’s still plenty you can do to ‘arm yourself’ against its deadly advance. <\/p>\n

Specifically, you can buy into the idea of holding gold or buying a few undervalued gold companies. <\/p>\n

Investing in the Living and the Dead<\/h2>\n<\/p>\n

I recently uncovered a fascinating chart, from Bianco Research LLC, of long-term US interest rates<\/strong> covering 222 years, from 1790-2012.<\/p>\n

<\/a>
\nClick to enlarge<\/a><\/em><\/div>\n

Pretty cool chart, eh? I could discuss this chart all day. But the take-away here is that since 1790, the average long-term interest rate on US Treasuries has been about 5%. When you look back over all of US history, interest rates<\/a> have almost never been under 3%, excepting during the total national effort of the Second World War. Keep that 5% in mind! <\/p>\n

The Current Historically Low Interest Rates<\/h2>\n<\/p>\n

So what are the current interest rates<\/strong> for US 30-yr bonds? At last check, according to the US Treasury, they’re sitting at just above 3.6% – up over the past five months on the hopes of a Fed taper. <\/p>\n

What’s the point? As the chart shows, historical rates for US bonds have averaged about 5% over the past 222 years. Yet right now, according to the US Treasury, short-term bonds yield just a hair above nothing. Medium-term bonds (one-five years) yield way under 1.5%.<\/p>\n

We’re a long way below the historical average of 5% money, right? Treasury yields are as dead as doornails. Looking ahead, what if there’s even a slight reversion of Treasury rates to the historical mean? What if these near-dead current interest rates start to rise via the Fed’s promised taper? <\/p>\n

Greasing the Treadmill to Nowhere<\/h2>\n<\/p>\n

What do these superlow, historically anomalous Treasury interest rates tell us? On that point, I’m reminded of the words of the great Austrian economist Ludwig von Mises, who wrote that ‘Public opinion always wants easy money, that is, low interest rates.<\/em>‘ <\/p>\n

Well, clearly, we have a government policy of easy money and monetary populism. The US government<\/a> – and its associated class of media and financial enablers – wants cheap interest rates to mask the true cost of horrific, irresponsible levels of federal borrowing and spending. Low interest rates are just grease for the country’s financialised treadmill to nowhere. <\/p>\n

With Treasury bonds continuing to offer historically-low interest rates, it sets a funereal tone for interest rates<\/a> through the rest of society. Why bother saving? Could it be that American money is ‘cheap’,’ in terms of interest because over the long term, it’s not worth all that much anymore? Do you see the issue? <\/p>\n

Back when I took the basic survey economics course at Harvard – Economics 10 – I recall the late Otto Eckstein (who worked for presidents Kennedy and Johnson) saying that cheap money destroys capital. That was just a fundamental point. If you missed that, you failed the course. <\/p>\n

In other words, we live in a capital-intensive world. Capital requires savings and investment. Yet low interest rates<\/strong> undermine people’s incentive and ability to save and invest. So low interest rates are – over any prolonged period of time – thoroughly destructive toward capital in many ways. <\/p>\n

We could go back to von Mises, who stated, ‘True, governments can reduce the rate of interest in the short run. They can issue additional paper money. They can open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late, and to bring about a depression.<\/em>‘ <\/p>\n

Soon or late? My bet is soon. <\/p>\n

Byron King<\/strong>
\n Contributing Editor, Money Morning<\/em> <\/strong><\/strong><\/p>\n

Join Money Morning on Google+ <\/u><\/a><\/strong><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au OK, I admit it. I watch the television series The Walking Dead. If you’re not familiar with this triumph of modern Kultur, it’s a cable TV show about people battling zombies in a post-apocalyptic world. Basically, The Walking Dead‘s premise is that an exotic disease killed off most of the world’s population, but … <\/p>\n

Continue reading “US Interest Rates and the Living Dead”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-42554","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/42554","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=42554"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/42554\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=42554"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=42554"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=42554"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}