David Stockman on Negative Yield Bonds

Writing about financial markets and debt may seem out of place on a musician's website, but those things have fascinated me for a long time.  They have a huge impact on our lives and we'd all be better off if more people paid attention to them and understood them.

All politicians, whether they call themselves Democrats or Republicans, know that buying votes with money is an effective way to win office and to keep it.  It's very fashionable today to take that money from future generations by running up a huge deficit. They can't protest because they are not yet alive.  How convenient!

David Stockman, the Former Director of the Office of Management and Budget under Ronald Reagan.  During his term the budget deficit soared so it's difficult to read this post from his blog and take it seriously.  But pay attention to the math more than the man.

It's a fact that central banks have been making savings very unattractive and speculation in asset markets more attractive in recent years.  That fueled the housing bubble and the current bubble in all asset classes.  What could be less desirable as an investment than saving or buying bonds at a negative interest rate?  You are guaranteed to lose.  With the price of assets like real estate and stocks seeing huge gains in price, more and more people buy them in the hope of making money rather than losing it.  But that's the kind of mania that has produced every market bubble and subsequent crash in history.  How long can the current craziness last?

Stockman does a good job of illustrating just how crazy the whole thing has gotten.  It's an article well worth reading: The Risible Myth of the Savings Glut and the Lunacy of Subzero Yields.

Needless to say, the 100-year Austrian bond is not some kind of one-of-a-kind freakish side show in the far back of the financial circus. As the grid below shows, there are now trillions of long-dated bonds that are trading at subzero yields, and which will positively crash in price when the current bond mania ends.

That's just a tiny sample from the article that is backed up by some good, solid facts. 

Related Article: Alan Greenspan Sees No Barrier to Negative Interest Rates in US Bonds

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