This week, interest rates in Germany fell BELOW ZERO.
It’s true… If you bought a six-month government bond in Germany earlier this week, you’d have to PAY THE GERMAN GOVERNMENT interest.
Unbelievably low interest rates are not just a German problem…
Interest rates are near zero in the world’s major developed economies… In Japan, short-term government bonds are paying 0.1% interest. And short-term government bonds in the U.S. are paying 0.01% interest.
[ad#Google Adsense 336×280-IA]In short, it is definitely a zero-percent world today. The question is, how long can it last?
The answer is… a very long time.
If you need interest income, you don’t want to know how long interest rates could stay near zero.
I’ve written about this possibility a lot in recent years…
Back in December 2008, I wrote a DailyWealth titled “Are 3% Mortgage Rates on the Way?” At the time, it sounded preposterous… Mortgage rates spent most of 2008 in the 6%-6.5% range. Now here we are, with mortgage rates at 3.9%.
Six months ago, I wrote another essay on the topic. It showed how we could eventually see mortgage rates drop in half. At the time, U.S. Treasurys, which influence mortgage rates, were paying 3% interest. Today, they’re paying 2% interest.
I’ve updated a chart from that DailyWealth showing how U.S. interest rates are at record-lows… But they could go lower, based on Japan’s historical example.
In the chart, I pushed Japan’s interest rates forward by a decade, to compare their path to ours.
Japan faced its “lost decade” one decade before we did. And its government attacked the problem the same way our government has in the United States, with dramatically lower interest rates and dramatically increased government spending.
Twenty years later, Japan’s economy is still not growing. It still has extremely low interest rates. And thanks to all the government spending, Japan now has the world’s highest ratio of government debt-to-GDP. (Ominously, Japanese real estate has not started a recovery, either.)
Back here in the U.S., you can hope that interest rates go back up so that you can once again earn income on your savings.
But hope is not an investment strategy.
I personally believe that we have a lot of incredible investment options right now, because of this zero-percent interest policy around the world. But holding cash at the bank and hoping for higher interest rates is not one of those options.
We could have zero-percent interest rates for another 10 years. Japan is proof. And the world is currently following Japan’s example.
Interest rates have been at zero since late 2008. It’s now 2012. And the Federal Reserve seems committed to keeping them at zero “for the foreseeable future.”
Can you deal with zero-percent interest for years going forward? If not, what are you doing to change your strategy?
My goal in 2012 is to find ways to take advantage of this extreme zero-percent world for my True Wealth subscribers. I will share many of those ideas here in DailyWealth as well.
But it is on you… If you’re relying on income, you need consider the reality that interest rates might not go up for longer than is comfortable for you.
You can hope for them to go higher. But you need to do more than hope. You need to make changes…
Good investing,
Steve
[ad#jack p.s.]
Source: Daily Wealth