The 5000-Year View Of Rates & The Economic Consequences

The fact we have the lowest interest rates in 5000-years is indicative of the economic challenges we face. Such was a note brought to my attention by my colleague Jeffrey Marcus of TPA Analytics:

“BofA wants you to know that ‘Interest rates haven’t been this low in 5,000-years.‘ That’s right, 5000 years. ‘In the next 5,000 years, rates will rise, but no fear on Wall Street this happens anytime soon,’ said David Jones, director of global investment strategy at Bank of America. This should not come as a shock to anyone who has been watching, given that the FED’s balance sheet is now an astonishing $8.5 trillion and that fiscal spending has caused the U.S. debt to balloon to over $28 trillion (For reference, the U.S. GDP is $22 trillion).

All of this really means that the FED and the U.S are in a tough spot. They need a lot of growth to dig out from mountains of debt, but they cannot afford for rates to move too high or debt service will become an issue.“

Rates Economic 5000-year, The 5000-Year View Of Rates & The Economic Consequences

Yes, rates will probably rise at some point in the next 5000-years. However, currently, the primary argument is that rates must increase because they are so low.

That argument fails in understanding that low rates are emblematic of weak economic growth rates, deflationary pressures, and demographic trends.

Short-Term Rate Rise Can’t Last

In recent weeks, interest rates rose sharply over concerns of a debt-ceiling default and inflationary fears. But, as Mish Shedlock noted, five factors are spooking the bond market.

  1. Debt Ceiling Battle: Short Term, Low Impact
  2. Supply Chain Disruptions: Medium Term, Medium Impact
  3. Trade Deficit: Long Term, Low-to-Medium Impact
  4. Biden’s Build Back Better Spending Plans: Long Term, High Impact
  5. Wage Spiral: Long Term, High Impact

“I said early on that if Progressives get their way on spending plans, especially their demands to have 80% clean energy by 2030 it would set off a bout of stagflation. The rise in bond yields and a slowing economy are now linked.” – Mish Shedlock