The 30 year US Treasury bond is below 4%, the 10 year US Treasury bond is below 3% and the 5 year US treasury bond is below 2%. All incredibly low yields that are indicative of a major flight to safe haven assets (along with gold’s continued move upwards), no confidence in equities and lower interest rates across the board for savers.
This is a clear indication of deflation taking hold and it is a very dangerous sign for other asset classes, such as stocks, real estate, commodities and junk bonds.
The present situation is quite familiar. Just look East to Japan and you’ll find the same deflationary winds have been blowing for close to 20 years now. Easy money zero interest rate policy, a habit of hiding bad bank assets and an economy in decline after a massive real estate implosion all facilitated incredibly low bond yields. Japan’s debt to GDP ratio is now 200%, and as the US ramps up its debt in response to our ailing economy the question becomes, “Why are we embarking down the same path of self-destruction?”
We are becoming Japan 2.0. A once prosperous industrial economy that is attempting to stave off depression with shortsighted economic policy that amounts to nothing more than “kicking the can down the road” or pushing off our problems in to the future and by doing so making the problems we face larger and more threatening. The only way out is to stop hiding our bad debt, start forcing insolvent institutions to close and let free market capitalism work (that is to say, let the bankrupt go bankrupt rather than having the tax payers’ foot the bill for their mistakes).
Otherwise we face many lost decades as a result of our policy makers’ reckless disregard for the future.