What comes after zero?

[cthulu2016]

This is the real interest rate on 10-year US bonds, which is now firmly negative. When this measure went below 0% momentarily in the middle of 2011 it was treated as a programmed trading blip or some other transient error. You can see that there was a big drop in effective yield and then folks went, "Wait a minute... are we really bidding US treasuries up to a negative real interest rate yield? That's absurd."

So it went back above zero for a few months. Then everyone kind of shrugged and said, "No, we meant to do that," and the real-yield plunge (price surge) resumed.

Krugman's comment on this development:

This is as clear a demonstration as you can ever expect to see that the models some allegedly authoritative figures use to analyze the economy are dead wrong; it’s also an indication that obsessing over the deficit, and actually cutting back sharply on government investment, are crazy.

http://krugman.blogs.nytimes.com/2012/05/06/meanwhile-in-the-bond-market/

[font size=5]Discuss[/font size]

[no_hypocrisy]

1. If interest rates were any lower, I'd have to pay the bank to keep my money.

Scrap that. They're doing that already.

[MineralMan]

2. Yah. Lots of people are already doing that.

Not a good thing.

[kenny blankenship]

3. You fall off the edge of the world, and "here be monsters"

We are in position rather like that of pre-Enlightenment Europe: ruled over by superstitions and by men who say the Earth is flat. They themselves may suspect that it is round, but since they have held authority for time out of mind while maintaining the flatness of the world, they lash out hysterically at the slightest mention of the roundness of apples, the comeliness of melons or the perfection of spheres.

[BadgerKid]

4. Maybe this is why the new floating-rate debt talk.

If you hold your bond to maturity, you are guaranteed to get back at least your principal. (Normally, you get back your inflation-adjusted principal, plus variable interest.)

[provis99]

5. more proof that monetary policy is crap.

thanks for nothing, Milton Friedman.

[cthulu2016]

6. How so?