Monday, October 13, 2014

Interest Rates: One Chart to Rule Them All (Musical Tribute)

Click to enlarge.

The left scale (in blue) shows the 10-year treasury yield.
The right scale (in red) shows wages divided by MZM money stock.

If you believe that wage growth will be weak relative to money supply growth over the long-term, then you might feel as I do that interest rates will not be rising over the long-term. And if you strongly believe it, then you might consider explaining this chart to people who think interest rates must rise simply because the government is printing too much money.

Put another way, if the government prints too much money (relative to wages), then there will be ample money available to drive up bond prices (and lower their yields). And what, pray tell, would stop them?

Source Data:
St. Louis Fed: Custom Chart


Anonymous said...

Glad to see you back in the swing of things.


Stagflationary Mark said...


It's good to be back! The Shingles pain is down to the point I rarely even think about it now.

Oops. Just thought about it.

In all seriousness, it barely bothers me at all now. Whew! :)