Thought of the Day #8

“Long-term Treasury bond yields are an excellent barometer of economic activity. If business conditions are better than normal and improving, exerting upward pressure on inflation, long-term interest rates will be high and rising. In contrary situations, long yields are likely to be low and falling. Also, if debt is elevated relative to GDP, and a rising portion of this debt is utilized for either counterproductive or unproductive investments, then long-term Treasury bond yields should be depressed since an environment of poor aggregate demand would exist. Importantly, both low long rates and the stagnant economic growth are symptoms of the excessive indebtedness and/or low quality debt usage.

This line of reasoning also provides an important corollary. If the effects of excessive indebtedness (low growth and low interest rates) are addressed by additional debt, or by debt utilized for investments that cannot produce an income stream to repay the obligations, then this even higher level of debt will serve to perpetuate the period of slow economic growth and unusually low bond yields.”

This is a short abstract from and investment company Hoisington letter for the 2nd quarter of 2012. The arguments presented are from academic studies. The real problem it is clearly too much debt caused by government officials. There is a lot of evidence to this end yet the media does not share it with the public for whatever reason. Curiosity is rewarded with knowledge. Become more curious. The time is now.