The 0.00% Yield

Right now holding onto cash is probably the best bet. I'd expect deflationary pressures to continue despite the federal reserve's inflation. They haven't started dumping money out of planes yet but they will if the default rate starts to climb much more.

The rating companies who assign those AA and AAA are useless as well. Recently Moody's Investors Service threatened to lower Iceland's debt rating to junk. Why isn't it there already? It's absurd.

Right now I prefer to invest my money in business opportunities and hold onto as much as cash as I can. It seems like risk out there is extreme when interest rates are 0%. How can you judge what's actually going on in the economy when the price of money is so distorted? We're facing a serious shortage of capital right now and the notion that a 0% interest rate is the way to raise more is insane.

Anyway if these municipal bonds explode on you I don't think anyone is going to bail you out.

Excellent point. Of course, the government knows this, and will thus be terrified to raise rates for a long time to come. Any raising of rates will quickly cut short the recovery, and then the government will panic and lower them again. Welcome to Japan!

There was also a story not too long ago about foreign investors forgoing the usually favorable T-bills because there were considered too risky. I am not quite sure what that really means. Here it is at WSJ: http://online.wsj.com/article/SB3000142405274870480420457506...

Now, about this 0.00%. I firmly believe that we are in a time vacuum, by design. You see, consumers form the foundation of our economic system. They are the engine. By keeping interest rates across the board obscenely low, we are providing much needed time for them to pay off debts. Once the bulk of the consumers become stable, then the rates should rise. Until then, the front of the caterpillar has to wait for the back to catch up!

After the implosion of the Japanese asset bubble in the early 1990s, Japan set effectively 0% interest rates in an effort to stimulate the economy. This led to what's known as a 'carry trade', where investors would borrow free money from Japan, and then invest it in higher-yield investments abroad.

After the collapse of the American equity markets in 2001, higher yields were hard to come by. So, all that liquidity went looking for a new home and largely landed in mortgage-backed securities, credit default swaps, and their associated derivatives. Of course, a lot of these investments yielded only a few percent, so investment funds would often leverage up 20x-30x to get a respectable rate of return.

When those investments started to unwind, they unwound hard. The end result was that the Japanese carry trade contributed to the eventual devastation of the American financial system. Which, ironically, means that we now have 0% interest rates. The great cycle continues.

Now, the Japanese carry trade certainly isn't the whole story, and there's a lot of other factors that were in play. However, there's no doubt in my mind that the BOJ's 0% interest rates helped us dig the hole that we find ourselves in today.

BTW, watched I.O.U.S.A. this week (http://www.iousathemovie.com/). If you want to have the crap scared out of you about the impending issues with the debt that's the movie to watch.

In real terms, the investments quoted actually had a negative return during 2009 (nominal interest rates mean little outside of an apples-to-apples comparison). With the unadjusted CPI rising 2.7%, those dollars can now buy less than they could one year ago.

The negative return actually suggests a lot about the economy (see Japan's lost decade -- http://en.wikipedia.org/wiki/Lost_Decade_%28Japan%29). Here are a few of the conclusions one might draw:

- There is considerable fear remaining among investors.

- The government is encouraging risk taking and investment, while discouraging savings.

- US treasuries represent the risk-free rate in many traditional financial models; the traditional models are either changing OR returns that seem sub-optimal when compared with yields from 3 years ago actually have significant amounts of risk embedded in them.

- Banks & local governments can borrow at very low rates, thereby strengthening their balance sheets, making for a potentially attractive investment opportunity (this is, of course, dependent on how wisely you expect them to allocate the capital they borrow).

- The implications are far reaching. This is only the tip of the iceberg.

Take away: Look for inefficiencies and exploit them.

Is the bank paying large bonuses (UK banks are paying bonuses bigger than their profits) if so they can afford to pay their creditors for giving them money to use.

Your Current Playable Balance is: 0.00 IDR

As hackers who want to create a better web, we should stop promoting the words of people like him and jc and others who give the internet a bad name. We should just banish them from the web -- they make it worse for everyone but themselves and their uber-elite little group of scammers.