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Grossly Misunderstood Debt
The often cited chart, by Bill Gross and others, reflecting a surge in Total Credit Market Debt as a % of GDP is distorted by a number of factors. One of the most significant reasons is that many families have substituted mortgage payments for rents and, without changing their costs, increased the debt ratio. Ironically, the shift built significant equity value. Further, when the long-term series is viewed on a standard logarithmic scale to show percentage gains over time, the chart becomes much less dramatic. On a real basis, adjusting for inflation, the rate of growth has been relatively constant over the past 50 years.
UPDATED THROUGH 2008
Bond Yields:
Reasonable Expectations
Is 4% on the 10-year Treasury bond high, low, or just about right? The Fed appears now--and may explicitly state soon--to be targeting inflation between 1% and 2%. By adding a 2% inflation-risk spread, 4% or lower may be just about right for the 20-year bond. As for the 10-year Treasury bond, we may soon see a yield that starts with a "3".
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