A ten year Treasury has a nominal interest rate of less than 2 . Because the inflation rate is also about 2 , this implies a negative real interest rate, which is confirmed by the interest rate of 0.6 on ten year Treasury Inflation Protected Securities (TIPS), which adjust interest and principal payments for inflation.

That is an extraordinary gap in the returns that you can reasonably expect. It naturally raises the question why aren t people moving their money from TIPS (and US Treasury bonds and other safe assets) to stocks (and other relatively risky assets)?

Also at the same meeting, the Forum heard statements by the following observers Canada, Fundo Indigeno, Parlamento Indígena de América, The Koani Foundation, Waikiki Hawaiian Civic Clubs, Na Koa Ikaika o Ka Lahui Hawaii, Seventh Generation Fund, International Institute for the Study and Preservation of Aboriginal Peoples, Threatened (TIPs), India Confederation of Indigenous and Tribal Peoples, Tugara Nation, Pacific Caucus, Asia Caucus, and Tlahtlokan Nahuacalli.

Global investors are apparently willing to accept these extraordinarily low rates, even though they do not appear to compensate for expected inflation. Indeed, the rate on inflation adjusted US Treasury bills (so called TIPS ) is now negative up to 15 years.

They buttress their argument that the deficit is not an immediate problem by pointing to very low interest rates on long term government debt, with a 2 yield on the ten year Treasury bond and a negative real interest rate on Treasury inflation protected bonds (TIPS). But such low rates do not reflect ordinary market sentiment rather, they stem from the fact that the Federal Reserve is now buying more long term securities than the government is issuing to finance the budget deficit.