The Death of Real Yields Continues

This is probably one of my better calls since starting this blog (not that I try to predict much here, since my crystal ball is rather hazy).

1. Predict bad economy.
2. Predict government response to bad economy.
3. Predict flight to safety.
4. Mention 1970s and the growing difficulty of making money off of money.
5. Repeat.

Here's the post that started the topic back in October (although I've been predicting the death of real yields in private since 2004, when I first turned stagflationary). The link to Stefan Karlsson is worth a reread in my opinion. I continue to be in agreement with his conclusion and it does not bode well for the future.

The Death of Real Yields
In conclusion, the explanation of the low yield on U.S. government securities is neither expectations of low inflation or falling global time preferences ("global savings glut"), but money-pumping by the Fed and other central banks and speculation in continued high levels of money-pumping.

I'm of the belief that there is SO much money floating around out there that it simply can't earn a good inflation adjusted return any longer. That's my bearish position in a nutshell.

For a while, money was flowing into everything. It was like a GUNS and BUTTER and STOCKS and BONDS and HOUSING and COMMODITIES monetary orgy. Great time to be a bull. Just buy something, anything. It didn't really matter what! Times are a changin' though (and the change isn't helping the real yield situation one bit). One by one, the investments above (in uppercase) are being taken out back behind the woodshed and old-yellered.

In any event, I don't see real yields rising much unless the economy strengthens substantially. I'm certainly not predicting that. I see plenty of long-term problems. Should the economy continue to deteriorate (seems much more likely), then the death of real yields will more than likely continue.

Of course, one might argue that the stimulus package might change all that long-term. Let me see. It will allow us to borrow money from ourselves (by increasing our national debt). We'll then use that money to either buy stuff we didn't really need in the first place or buy oil at an even higher price. *deeply sarcastic eye roll* Why the higher price? Probably has something to do with printing fresh money and handing it to foreigners as payment in full. Just a hunch!

Source Data:
U.S. Treasury - Daily Treasury Yield Curve Rates