QUESTION: Some analysts “expect that the u.s. treasury will keep interest rates low for many years. they quote japan`s so-called “lost decade” as a precendant and appear to expect that such artificial supression will in fact work ( obviously against what you consider “market forces”). which poses the question: does japan`s “lost decade” conform to the ECM model or did it constitute and exception?
And, can such an “exception” and “rate fix” also work outside of japan ( a traditionally patriotic and politicized market it seems), even in such a huge market like the u.s. debt markets ?
Can your theory of an “unfixable” rate market be substantiated via volume statistics? – for example via the relation between the volumes of u.s. originated and international position sizes in that market ?
Looking at the recent reversals in Bridgewater’s and Pimco`s expectation towards a long-term artificially suppressed u.s. rate market it appears that the answer to the above questions is big “game”.
best wishes
JC
ANSWER: Any attempt at a fixed exchange rate such as Bretton Woods is a manipulation. Marx and Keynes were both manipulating the economy. “The Club“ with their numerous manipulations of markets and politics is another example. Rigging elections and denying the people the right to vote with republics masquerading as democracies are all attempts a manipulation. Nothing but nothing can survive – even communism fell as is the case for socialism. It is merely a question of time.
The analysts you have mentioned will be wrong. Why? Because those sorts of comments are one-dimensional. True the governments have artificially kept interest rates down to balance budgets. This trick began with Clinton and his miracle of balancing the budget was shift the debt from long-term to short-term saving about 50% in interest expenditures..
However, Pension funds and socialism are imploding. It is not a question of can rates be held down artificially, it is merely a question of how long can such attempts be sustained. In the case of Japan, its debt is mostly internal. Japan for a long time maintained currency controls so you could not issue private notes in yen without each note being approved by MOF (Ministry of Finance). There are no such restrictions on US dollars. Hence, the dollar debt is elastic expanding globally as private companies and foreign nations issue bonds in dollars compared the exact opposite in yen.
Japan has the oldest population. Their crisis is pensions is starting to create major problems. The will be raising the sales tax next year. The days of Japan being able to sustain its manipulation are coming to an end. The maximum time frame such an artificial suppression of rates can be maintained is 31.4 years. from the 1989 high, which is the bottom of this cycle 2020. We will see rates rising dramatically in Japan on the next 8.6 year wave in the ECM. However, the pressure is starting to build and historically depressions last 23 years at the minimum or 26 years at the maximum. This gives us the time frame that appears to be precisely on target 2012 when the Nikkei and rates just started to reverse in Japan and 2015 being the max or 26 years.
Can the “unfixable” rate market be substantiated via volume statistics? Manipulations can be maintained for a maximum period of 31.4 years. They typical time frame is 27.004 years (8.6 * Pi). That was the precise length of time Bretton Woods survived until the gold standard collapsed in 1971. Simply put, there is absolutely no evidence in history were anything has been “fixable” for the free market forces that alter the best plans of men and mice include the cycles of weather – mother nature. We will never be able to control those aspects of cycles.
Our real computer model (not the laptop version used at seminars) correlates the globe entirely. This presents the world on a plate and defies the traditional way of one-dimensional analysis that tries to reduce all trends to a single cause and effect.
A rising current account deficit can take place (1) by reckless consumer spending with the importation of luxury goods as Cicero warned the Senate of Rome,
or (2) foreign investment that expands the domestic economy creating the illusion of a deficit by the exportation of interest and dividends (see Australian).
There is no single relationship that withstands the test of time and circumstance. There are always two dimensions to every fundamental. Yes the government can keep rates artificially low. However, pension funds become insolvent forcing them to invest more into the private sector, the elderly lose their retirement no longer able to live off of their savings, and the spread between bid and ask in interest rates for the real world widen (0.5% for 3 year CDs while secured 3 year car loans are at 4%). There is a huge difference in the spread that emerges and tears the fabric of society apart.
The real rates will rise when capital shifts from banks into stocks and real estate because the banks cannot be trusted, This is caused by the requirement to earn more to meet obligations by pension funds and the elderly. As that capital shifts, the availability of cash to play with in banks will decline and that will force them to bid higher for deposits that the central banks cannot prevent. Everything is connected within the global economy. This is why artificial manipulations can never be maintained indefinitely. Hence the answer is the opposite. Not whether I can prove markets are “unfixable”, but can anyone please show me even one precedent where they have ever been fixed successfully that extended indefinitely? Sorry, but no government has met that criteria to date.
We are working now on the interface so that clients will be able to ask questions of the computer and it will respond. By creating a computer that actually learned from parsing data spanning thousands of years, the knowledge base that has been created is far beyond anything ever accomplished. You will see first hand that this is not merely my personal intellect, I have learned from (1) my clients on a global scale forcing me to see the world through everyone’s eyes, and (2) building a computer to retain and collect the knowledge of generations. Allowing the computer to create its own rules, opened the door to a nonlinear landscape that has been truly mind-changing.
Our problem in government and in analysis is the same. Government never asks has anyone tried this before and what was the outcome. They are the perfect example of insanity – trying the same solution over and over again yet expecting a different result. In analysis, mankind has tried persistently to reduce everything to a single cause and effect – interest rates up stocks down or some other stupid nonsense like inflation up buy gold. This is far more complicated than that stupid nonsense because we live in a multidimensional landscape within a nonlinear world that is round, not flat with a mere straight line between two points.
What we will make available to our clients will show you that up until now, the field of analysis has been operating as if the world were still flat. Sorry – it is round and nonlinear. It is time we begin to speak more than a single language. Each language incorporates (1) culture and (2) thinking process. In Japan, you would never say “I would love a cup of coffee.” They will assume you are homosexual because to them the word love is only between a man and a woman. The world around us is fascinating. It is time to open our eyes.
