I think that people and countries not wanting to purchase 30 year long term debt in a zero interest rate environment is perfectly natural. There is far more potential downside than upside and not evidence of demise.
Reality is that there is little motivation to invest in long term debt under 3%, normal motivation to invest in debt between 5-10% and huge appetite for debt above 10%.
Debt with a sub 2% interest rate can only be achieved with significant government intervention. We were living in an unrealistic economoic reality and now we’re going back towards something realistic with interest rates between 5-10%.
I think the US is particularly crazy about it because ultra-low interest rates allowed the country to temporarily paper over the realities of the nationwide housing shortage and resulting housing prices, and now everybody's getting slapped in the face with more realistic mortgage terms again.
Eh. That was only true before the price hikes caused by those ultra low rates.
If everyone has access to ultra low rates, housing supply prices rapidly increase to match demand, and you reach a new equilibrium (albeit with higher price:income multiples).
So it’s not papering over anything — it just goosed housing prices higher.
I think increasing housing values succeeded in solving the banking crisis that was created by the erosion of banking capital when they foreclosed on properties that were worth less than the loan value, because the banks lent money without downpayment to subprime borrowers.
Now we're currently papering over the resulting sky high asset values by allowing inflation to erode the relative value of the sky high real estate.
> Now we're currently papering over the resulting sky high asset values by allowing inflation to erode the relative value of the sky high real estate.
That will only be true if inflation in non-housing accelerates and housing prices stay constant, which seems unlikely in a supply-constrained market.
In any high-inflation scenario, real assets are likely to be highly attractive. Where else? Bonds, death. Equities, only if the economy keeps humming while inflation persists. Gold, bad price appreciation.
Reality is that there is little motivation to invest in long term debt under 3%, normal motivation to invest in debt between 5-10% and huge appetite for debt above 10%.
Debt with a sub 2% interest rate can only be achieved with significant government intervention. We were living in an unrealistic economoic reality and now we’re going back towards something realistic with interest rates between 5-10%.