[gebregebremarian]

Anyone out there explain the flattening yield curve?

It seems absolutely incredible that investors would be willing to tie up their $'s long term at these yields, yet they are.

Contrarian economists speculate that real inflation is in the range of 6-7%. If so then why would they invest this way? They certainly don't enjoy losing their hard earned electronic cash. Perhaps the contrarians are wrong about inflation.

Bill Dudley sees it differently:

Goldman Sachs Sage?

[lutherquick]

Well, I'm not an expert so here I brainstorm.

I think the reason interest rates can stay so low and not create inflation like Germany had around WW2 is that our currency is expereincing the greatest hegemony ever of any currency.

If you take a 100 Ruble note and drop it in NY, it will quickly propagate to a local bank, to cb, maybe forex, then to the Russian central bank, maybe with in a few days.

But if you drop a 100 dollar note in Moscow, it will stay there and circulate, maybe until it's lost, or inflates to being worthless.

Remember it cost 6 cents to print a $100 bill.

The entire world is use US money to buy oil, to save, to bring stability, to even hold debt. This demand on the dollar has created this hegemony over 50 years or so.

The reality is that this can not go on forever. It has greatly subsidized the US economy. It has given America the ability to print money and keep interestes rates low with out directly creating inflation. Although there is allot of inflation in realtion to energy prices and market demand on such things as homes, much of this isn't the result of "printing", because much of our money is exported and never comes back.

This isn't the single answer. But I think it's part of what you ask. When you read the news we all try to find some silver bullet to answer what's up? Why are we in Iraq? Peak oil? democracy? dollar hegemony when Saddam wanted to sell oil in Euro? maybe all three and others...

Note that the US FED will stop reporting the M3 in March just as Iran starts her own oil exchange.

We will see what happens, but I never believe what the US gov tells us and news and forums don't have clear answers....

[Novus]

Most of the outstanding dollars in the world is not even on paper but just numbers in a computer. There are also many deflationary pressures out there. The biggest is wage deflation. Average people are making less and less. When an 80k a year Engineering job is outsourced to China for 8k that is deflationary. Also the unemployed American will have to find new work and in most cases it will pay less than the job that was lost. That is more deflation. Also as wages fall profits go up for the fat cats. The richest 100 people controll more wealth than the bottom 3 billion and richest 1000 people controll more wealth than the bottom 5 billion. When lots of money is held by few hands it tends to become more valuable rather than less valuable.