IT IS worth pausing from time to time to reflect on the remarkable features of the modern economy. As Deutsche Bank points out in its long-term asset return study, the longest series of bond yield data is for the Netherlands dating back all the way to 1517. In June, those yields reached a record low. Not just any old record, then, but a 500-year nadir. In America, yields go back only to 1790 but they too have been at all-time lows. The Bank of England was founded in 1694 but never felt the need to push base rates down so low; not in two world wars or a Great Depression. Nor did the Bank ever feel the need to expand its balance sheet to such a great extent (although Deutsche only has data back to 1830); currently it is around 25% of GDP....Predictive analysis based on a historical dataset is always subject to the "Black Swan" problem of induction, but at least it's based on something. We are here in uncharted territory.
Given this combination of economic circumstances, Deutsche is surely right to say that"Anyone predicting the endgame is speculating outside the historical dataset."
You Say "Remarkable"?
The Economist writes:
By Grim on Sunday, September 09, 2012