We’re in strange times.
The entire German yield curve is below 0%. Japan mostly below 0%. This week, for the first time ever, the entire US yield curve is below 1%.
Above, 30y treasury yield. Below, CPI inflation.
I'm still not sure what this means. What’s good, what’s bad? 14% back in the 80s was bad, because it went with high inflation. But even then, the real, inflation-adjusted rate was a few percent.
The real rates are now negative for the first time ever. As far as I can tell, this reflects a lot of uncertainty or pessimism. Tons of cash looking to minimize risk, even at negative real rates. It reflects lower population growth and an aging population. Above all, it reflects a failure of imagination. Finance world does not have any confidence in future growth and cannot think of enough productive ways to allocate money.
It feels like we’re at an impasse. We have obvious needs. We have third-world problems in our wealthy country. We have gaping infrastructure and education needs. And yet the collective finance world, the people we’ve delegated tons of power to since Reagan, don’t know how to meet those needs.
Decades ago, we had enough confidence in our future that we could deploy capital at scale with a strong expectation of at least a few percent real return. Apparently not today.
We’re seeing that the markets-only approach has hollowed out government institutions. It shows up in a feckless FTC that's no longer enforcing antitrust. It’s showing up dramatically in our response to Coronavirus. It showed for years in our inability to execute infrastructure projects competently.
Not sure how we fix this. It feels like a vacuum of leadership. In the public sector, we don't have the institutional capability we once had, nor does the public have much pride in our government. In the private sector, we've delegated tremendous power to the finance industry, which wields that power without much imagination and without any overarching plan.
We need a changing of the guard. But right now, it's totally unclear where the new ideas will come from.