I also don't believe interest rates will stay low in perpetuity. Quite the contrary.

What I was pointing out is that high interest rates would put great strain on both the Treasury and the Fed. The Fed is holding assets on its balance sheet that are very interest rate sensitive. Should interest rates go up, these instruments would most likely suffer a higher default rate further compromising the Fed's already highly leveraged ( somewhere around 40-50 to one) balance sheet. My point was it was necessary for the Fed to try and maintain low interest rates. I did not mean to imply they would always be able to do so. The way they do so is by buying bonds from the Treasury. Eventually, if they are buying all the bonds to maintain low interest the public recognizes the fallacy of depending on the dollar to hold its value. So they are in a balancing act. Buy too many bonds and the market looses confidence and not only doesn't buy the bonds but starts actively selling them. This would likely lead to hyperinflation. If they don't buy enough bonds and the market doesn't buy them, interest rates rise. If interest rates rise both the Fed and the Treasury likely would be under duress. A fair amount of that 2.8 trillion that the Fed owns is mortgage backed securities. Higher interest rates would not help the default rate out on that "asset" at all. The Fed has every reason to want interest rates to stay low, as does out government Treasury.

Like I said, between a rock and a hard spot. But I do not expect low interest rates forever. At some point, current holders of bonds would revolt. At least this is what history tells us about over indebted governments who can not sell enough debt to maintain their deficit spending and turn to their central banks printing press to make up the difference. The public holding the debt and currency will put up with it for a while, but not forever. Eventually it ends badly if the government continues to deficit spend beyond what growth will sustain. Maybe this time will be different. Maybe our legislators will balance the budget (when they actually make one) and deficit spending and debt accumulation will stop. When I see a change in direction, I'll change my outlook.

I don't know about being right on much. I thought interest rates would rise ten years ago. I have been wrong all this time. Would have been much better off with variable rate interest loans. The lesson of the 80's came hard.

Thanks for the input. Will have to get to all the links later. Got to cut some wood before it gets cold.

John