While there has been much discussion about the S&P downgrade, rates have gone down. Some credit risk problem. We have to look the poster child of debt problems in the developed world. Their debt/GDP level is by some measures over 200 %. Japan has been downgraded to AA- and 10-year yields are blow 1 percent. This is the lowest level during any level in history.
There is a complet disconnect between credit risk and interest rates. Some may say that the same may come true for the US; however, these low rates have come with a cost of no growth for almost two decades and deflation. The population is aging and declining and there is little hope that growth will return to the 70's and 80's level. Rates are unconnected with credit risk except in the CDS market. There will be a non-linear effect. At some point the music will stop for Japan and for the US.
Something that cannot go on forever, will not as Herb Stein the economist pundit has noted.
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