Financial Masochism

Returning from the beach to be greeted by 1.51% 10-Year U.S. Treasury yields, so I found this comment from Clyde S. McGregor at Oakmark too timely not to share.

Gillian Tett, columnist for the Financial Times newspaper, has coined the phrase above to describe the actions of American bond market investors. Ms. Tett uses “financial masochism” to differentiate from “financial repression [which] occurs when governments engineer a situation in which investors feel compelled to buy bonds at unfavorable rates, i.e., below the prevailing rate of inflation, thus helping to reduce national debt.” She argues that, in America, “investors are gobbling up government debt at unfavorable rates without needing to be repressed at all….Anybody buying Treasuries, in other words, is essentially agreeing to subsidize the U.S. government in coming years—unless you believe that deep deflation looms. Call it, if you like, a form of ‘voluntary’ repression; either way, it will almost certainly end up helping the U.S. state, to the detriment of investors.” Or, as Princeton professor Burton Malkiel has written, “The current era of financial repression may well lead once again to the euthanasia of the bondholding class.”