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The M2 money supply is growing exponentially. The 10-year Treasury yield has been decaying exponentially. Ignoring volatility, the end result has pretty much been a constant for 40 years. Behold the power of falling off the gold standard.
Although correlation doesn't imply causation, I don't believe this is a coincidence. Deep down, I think we all know what would happen to our economy if interest rates rose to 10%. Saying that it would not be pretty would be an understatement.
Those expecting interest rates to increase because the money supply has suddenly increased may be very disappointed. To support my belief, why would banks raise interest rates to attract more deposits when they are already flooded with deposits?
As a side note, should we be worried that the chart has become more volatile over the past 20 years?
Nothing lasts forever.
2 comments:
OK, how about we settle for something in the middle, say, 5.25%. That was the average fed funds rate prior to 2008.
I don't mind things that aren't pretty, if I did I wouldn't be able to keep mirrors in my house.
Hahaha! Deal!
It’s settled. We both agree on 5.25%. Which one of us wants to work up through the ranks to become a future Fed chairman? I’d offer to do it, but I’m in perpetual stay at home “mental health day” mode these days. I practically have one foot in the coffin. Situation is grave. Isn’t pretty. You know, due to the pandemic. Has nothing to do with my fear of the sun, mirrors, and garlic. ;)
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