Notice, in this era of high risk perception, to which "assets" individuals flee? Fiat currency (dollars specifically) and government debt (US Treasuries).
Do you see why the world might have had an appetite for US dollars, T-bills, MBS, and bank deposits (when they are backed by a real or implied promise to pay). Risk averse behavior was at the core of the recent global savings glut. And far better explains the low real rates of the last +/- half decade. Nothing more is needed to explain this era's yield characteristics. Explanations which start with FED pumping eventually require the cooperation of all central banks, government officials across the political spectrum telling the same lie, and an incredibly naive global investor community with, effectively or actually, zero rational expectations. In other words, the explanations become more contrived in order to explain counter-theoretical evidence.
Many in the media are still blaming the financial crisis on too much debt, while the more savvy blame mis-priced risk. The latter is closer to the truth as the implied promises to back the MBS market and the "special" accommodations/exceptions allowed for Fannie and Freddy debt on bank balances sheets is at the core of the credit contraction. The contraction can be attributed mostly to the same things as in all other credit contractions, balance sheets concentrated on single asset classes, i.e. the losses therein necessitating a recapitalization event. |
