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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: orkrious who wrote (45017)	11/8/2005 9:49:25 AM
From: Wyätt Gwyön	Read Replies (2) of 110194

Over time the interest doesn't keep up with inflation, last century the interest rate was 0.5% real. that's pretty good evidence that the yield more than keeps up with inflation "over time". in fact, if you think about it, if you have a fiat currency the interest rate has to keep up or else the currency will be inflated out of existence. if this kind of inflation were happening people would be much poorer over time. in fact what you find is people are much richer over time. does anybody but goldbugs want to go back to the 1930s? i doubt you could have negative real yields on average for a century and have a currency survive. for short periods of time, yes, it's possible. but eventually things get hairy and you have to have a guy like Volcker come in and throttle the economy with very high real rates. IMHO even if you exclude the tax effect. i think one must exclude the tax effect because the govt has shown it will tax all alternatives to cash as well, and often at worse rates as "collectibles".

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