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Napanee, Ontario | The spread is what ensures that there is incentive to BUY an asset vs holding cash.
Let's look at this comment: "A 2% treasury rate, to me, implies that, in real terms, there is no ROI."
I would likely agree with this, and take it further that in REAL terms, it is likely already negative -all depends on what inflation statistics you believe. But let's say it is 0%.
So, by the same token, the nominal 0% return on bank deposits necessitates a -2% REAL return. That is the reality investors are understanding. That it is better to get 0% real return in a Treasury bond or maybe 1% return in something riskier, vs -2% in cash. effect, negative rates are already here, and have been for a couple years.
You argument holds up if the spread disappears. Then there is no incentive to leave cash. Yes, spreads have been getting narrower, but there is still incentive of holding an investment to earn 0% return vs getting a negative return not holding it.
"Are you saying that stocks, land, art, etc. can continue to go up forever?"
Nominally? of course. That depends on how long they want to continue to inflate the money supply beyond the rate of GDP expansion.
Edited by OldMcdonald 11/24/2014 14:22
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Negative interest rates coming?
