Day after day we are told that stocks are the place to be and that bonds are a disastrous bet as "rates must rise" but it appears that, increasingly, the world's developed (and debt-laden) economies are turning Japanese (with German 2Y rates at 2bps for example). But, for some context as to how low rates really are, Deutsche's Jim Reid unveils 500 years of Dutch (European) interest rates... and we have never been lower.
"When somebody has too much debt and cannot reimburse it, how do you bail him out? Obviously by restructuring his debts, which imply losses for his creditors.
But when one lends him more money in order for him to pay back what he owes, he is not bailing him out but rather pushing him in a bigger hole! The game until now has been to "print" more money and to add more debt on the shoulders on the indebted ones, to gain some time in the hope that growth will resume and reduce de facto the weight of the existing debt burden and the additional new debt issued to support the initial debt troubles.
This is a big misunderstanding of debt dynamics and its effects on the economy. When debt becomes too big, which it is now the case in many parts of Europe, the servicing drains all the available cash flows and reduces the growth potential."
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So, are bonds wrong? Or do they see a world where growth is permanently stifled by the drag of interest expense?