Quote:
Originally Posted by tabs
Can I quote you?
As stated the reason why the USA has ENJOYED such a low interest rate environment for "for almost a decade" is because the rest of the world is in such a mess and the USA economy is anemic.
I wonder what the threshold interest rate would have to be before massive amounts of money start pouring out of Equities and back into Bonds? A slight move upward would not prompt a move as higher interest rates would be expected and principle would be at risk.
Debt levels so far have not seemed to matter, as the economic weakness and a flight to safety has been the driving force behind a low interest rate environment. At what point does debt level and attending service cost start to drive interest rates upward? At what point does debt risk out weigh safety and in of itself become a liability? Secondly at what point does increased economic activity calm the jitters people have which will sound the all clear to move out of bonds and into other asset classes? Which will then push interest rates higher.
As you can see interest rates are a complicated issue with multiple factors being intertwined. In that I have no real good answers for you about the future of interest rates. Except to say that interest rates seek an equilibrium in adjusting to all of the factors discussed above at any given moment. So the question becomes what will spook the complacency of the herd?
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Economist Lacy Hunt at Hoisington Management has had an interesting and long standing take on why interest rates remain low. Debt levels matter. I like to read their quarterlies for a different perspective. Enjoy.