US, Germany, Japan and debt.

This opinion piece in Business Insider, from John Maudlin triggered this post.  I'm not saying that I disagree with everything, but there was just one aspect that got the brain churning, today.

There are people on the left, center and right who all believe that government debt is excessive.  I disagree, because, you merely need to look at the long-term trend and see that the US' 10-year rates have been sitting at record lows, dating back 70 years.

via Tradingeconomics, US 10 year bond, 1940 - 2013

No, we're headed towards near-16% rates, I don't care what any politician or jaded economist says, they're not looking at what drives the bond rate; they're anticipating that debt absolutely drives bond rates, which is wrong.  All we need to do is benchmark the US against Germany, in long-trend views.

via Tradingeconomics, German 10 year bond, 1990 - 2013

via Tradingeconomics, US 10 year bond, 1990 - 2013

If we look at a shorter, recent period, the trend isn't terribly dissimilar, either.

via Tradingeconomics, German 10 year bond, 2008 - 2013

via Tradingeconomics, US 10 year bond, 2008 - 2013

Yes, there's currently a difference of 57 basis points, but look back at that 23 year trend (or even within this 5 year comparison) and you see much wider splits, even though the general trends are aligned.  So no, you shouldn't be afraid of the threat of spikes in bond rates, as that of Greece, Spain, etc.

Now, if we look at Japan's case, it gets interesting.

via Tradingeconomics, Japan 10 year bond, 1990 - 2013

In the same (1990 - 2013) time frame as Germany's and US', Japan's 10 year bond rate plummeted sooner and faster, then flatlined at the bottom, more or less.  If you were to compress the period between 1990 [corrected] to today, it looks remarkably like what's happened between 2008 and 2013 in Germany and the US.  You have a drop that led to a bottoming out (more or less) which is now relatively flat, near that bottom.  This should be instructive: terrible or low economic growth leads to low private investment, which ends up being dumped into low-risk government bonds.

2012 Debt / GDP %:

• Japan = ~210%
• US = ~99%
• Germany = ~80%
• Australia = ~23%
• Russia = ~10%

Current 10 year bond rates

• Russia = ~ 7.0%
• Australia = ~3.3%
• US = ~2.0%
• Germany = ~1.4%
• Japan = ~0.8%

Do you see it, now?  Debt has very little to do with bond rates of stable countries.  If it was correlated, you would see Japan with very high yields and Russia with extremely low yields.

[Added: By the way, since we're past the R&R magical 90% debt/GDP ratio and haven't seen anything happen, shouldn't we put this topic to rest?]

Back to Maudlin's piece, surely, as he noted, Japan has a lot of other problems aside from deflation, but I'm quite certain that having sustained growth solves a lot of problems.

For all the problems we still have in the US, our modest and prolonged growth has shrunk our deficits, such that a debt ceiling showdown has been put off -- and that's hugely important.  Without growth, you cannot possibly hope to get out from under your debts -- something I'll explore at some other point in the future. :D