Thank you Clive,
Possibly the most cogent part of that article and the one with which many are concerned was:
Government spending and taxation policies also affect the equilibrium real rate: Large deficits will tend to increase the equilibrium real rate (again, all else equal), because government borrowing diverts savings away from private investment.
The article seems to indicate that the equilibrium real interest rate is very low, yet in the greater part of the inhabited world government spending and taxation policies seem to such that we should expect a far higher equilibrium real rate.
When shall the Piper be paid?
It was always my thought that the incredibly high (by U.S. historical comparison) interest rates during the '80s were the Piper finally being paid for the cost of the S.E. Asia expenditures of the '50s, '60s and into the early '70s. One could also toss in the overall Cold War expenditures, too. If this has some truth, then how long will it take before the Post 9/11/2001 expenditures will have to be paid?
What is the real core inflation rate? I have only nominal faith in the Consumer Price Index that is generated by the U.S. Bureau of Labor Statistics. Lots of information is gathers and collated but there seems to be something missing there relative to unfunded government spending.
My simple view on interest rates is that central banks charge "All the Market Can Bear" at any particular time. It is in their best self interest to do so. If that is the case, then the world economy can't bear very much in the way of interest burden and is far more precarious than most investors think.
It is the time-value of the AIM Cash Reserve that has to pay its own way these days. This is because of the very low real and inflation adjusted interest rates available. The LIFO return on AIM's recycled cash has to cover further ground now than when the "risk free rate of return" was higher.
