The FRBSF Agrees with ME! :)

The 3 Ps: Part 2 of Productivity, Population, and ‘Product’
August 14, 2016
The SHI – 8/17/2016
August 17, 2016

Two days ago, I posted my second of two blogs on the future of LOW:  I predicted the ‘new world’ is a place with low GDP growth, low inflation, low productivity, low population growth, low ROIs, and low interest rates.

Yesterday, one day after I posted my blog, Dr. John Williams, President of the San Francisco Federal Reserve Bank, posted an economic letter completely supporting my thoughts and conclusions.  Thanks John!

Here’s the link to his letter:

http://www.frbsf.org/economic-research/publications/economic-letter/2016/august/monetary-policy-and-low-r-star-natural-rate-of-interest/

Dr. Williams feels, “the new challenge for central banks is how to deliver stable inflation in (this new) world.”    This new world, he agrees with Dr. Larry Summers, is a conundrum (which) shares some characteristics and common roots with the theory of secular stagnation; in both scenarios, interest rates, growth, and inflation are persistently low.”


Why You Should Care:   It’s been said ‘one person with a crazy idea is a nut…two are a movement!’   Well, today, with John’s support my lone-nut ideas are a movement!  🙂


Taking Action:  I’m going to repeat what I said in the first blog:

The rate of return on investment is a paramount concern to everyone.   Whether you’re an individual, a business, an investor, an insurance company, a pension fund or … whatever, the rate of ROI is critically important.

Future ROIs will be lower than ever before in history.   And they will remain low – for a very long time.

Meaning the value of the assets that produce that return will move in an inverse direction – UP.   The value of their income streams is increasing.   Dramatically.  This dynamic is presently at work in the stock and bond markets.   And the real estate markets.

Real and financial asset values are rising.  And will continue to do so.  If you have the opportunity to acquire well positioned assets, do so.   As soon as possible.  Values are likely to continue to rise.


The Blog:  “How low can rates stay?” Dr. Williams asks.

low rates

His chart shows the progression of ‘real’ interest rates since 1980.    The trend is clear.   And the reasons for the move?   Per Dr. Williams:

“The underlying determinants for these declines are related to the global supply and demand for funds, including shifting demographics, slower trend productivity and economic growth, emerging markets seeking large reserves of safe assets, and a more general global savings glut.”

I completely agree.

In his conclusion, Dr. Williams makes this comment:

“Economics rarely has the benefit of a crystal ball.   But in this case, we are seeing the future now and have the opportunity to prepare for the challenges related to persistently low natural real rates of interest.”

If Dr. Williams and I are correct, we ARE in a new world.   A world where income-producing asset values – assets of all types – will grow at rates far faster than in the past.

Grow your net worth; acquire income-producing assets.    As soon as possible.

  • Terry Liebman

1 Comment

  1. willie says:

    Terry,

    Obviously, Williams is reading your blog. Smart guy!

    W