<< The only problem with this scenario is that some really smart bond guys--like Bill Gross--see the long bond yielding 3% in five years time. Others on the street have mentioned 3.5%. >>
Actually, I think long bonds will have low yields too. After the deflationary spiral starts and excess liquidity will start getting destroyed,through waves of bakrupcies, bank losses and fall of the derivatives tower. Yields will ultimately come down. Japan is a very good example of that. Their yields are almost zero, and still no borrowers. Banks still sitting on a huge pile of bad debt.
Bill Gross's timing wasn't precise for a while. But I do think he's a smart guy and will be right in the ned.
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