Continuing last post‘s theme of rates, another thing I read/hear quite often is that rates must go up. My question is often “why?”
Some argue that short-term rates must rise, for all sorts of reasons. The below chart shows that short-term interest rates in Japan have been close to zero for 20 years. Clearly, short-term rates can stay low or be held down for a very long time.
I can already hear the objections. The US is not Japan and those are short-term rates. The “US is not Japan” is a literal and factual statement, but I do not know how that invalidates the point. To those that say short-term rates are manipulated by central banks, I offer up a second chart showing the long-term US Treasury yields from 1870-2015, courtesy of Nobel Prize laureate Robert Shiller’s data which can be found at multpl.com.
Even here in the US, market-determined long-term rates can stay low for years and even decades. To say they must go up is to ignore history. As mentioned in the last post, I am not arguing that rates will stay low, but simply that they can.