Gold broke another record today, closing just over $1,700/oz. The Dow Jones Industrial Average dropped 634 points (5.5%) and not surprisingly, US Treasuries jumped.
This was the expected response to S&P’s cut in US credit rating.
The irony is the jump in US Treasury prices caused a decline in the interest rates.This is because bond prices and interest rates are inversely correlated.
Usually, when your credit rating is cut, the interest rate at which you can borrow goes up. But, in the case of the US government, it has gone down.
The current yield on a 10-year Treasury is 2.31%. Last month it was 3.02%. Similarly, the yield on a 30-year Treasury bond is 3.65%, down from 4.28% last month.
Maybe S&P should take down the US’s credit rating another notch, and cause interest expenses to fall even further!
Okay, I’m being facetious.
But I don’t like the way it’s playing out. The current economic scenario reminds me of Japan over the past two decades.
Will the US economy continue to flounder for the next several years just as Japan did?
Will the government continue to prop up failing banks and poorly run business at the expense of the tax-payer?
Will interest rates continue their downward spiral?
Will real estate continue to slide for the rest of the decade?
Are we really turning Japanese?
I really think so!