The Fed vs. Long-Term Treasuries

The following chart shows the spread between the 30-year Treasury bond yield and the effective Fed funds rate since 1982. I have added lines in yellow (peak), red (average), and green (minimum trend).

2 predictions for my lifetime:

1. The spread will never reach the yellow line again.
2. The spread will never go below zero again.

I do not believe that our increasingly leveraged economy can tolerate a 4% yield on the 30-year Treasury bond again. If so, the only way to reach the yellow line is if the Fed funds rate actually goes negative while long-term rates are still high. Not going to happen.

The upward slope of the green trend line shows that the Fed is finding it easier and easier to slide us into recessions. I strongly suggest that they acknowledge this trend instead of raising rates until another crash occurs. It just doesn't take as much effort to strangle an increasingly leveraged society.

Note: These are only predictions for my lifetime. If you are much younger than me, sorry about that. If it is any consolation, Rome did not fall in a day. These predictions might hold true for your lifetime as well. I just wouldn't count on it. Once again, sorry about that. Borrowing excessively from the future to pay for today is what we do. Wasn't my plan. Isn't how I prefer to live. Can't go on forever.