At yesterday’s auction of U.S. Treasury obligations, investors agreed to accept a zero yield on $30 billion of four-week securities. Demand was such that the government could have sold four times that amount of no-interest debt. Said one analyst quoted in the New York Times, “The last time this happened was the Great Depression.”
Forget sunny assessments of the economy. Ladies and gentlemen, we are headed for the worst downturn of our lives. When people accept a zero yield, they are saying alternative investments will lose their value. And while people feel that way, capital will not flow to business. And until money goes to business, there can be no recovery.
There is, of course, another message here. Investors believe in the government of the United States. So here’s another thing to forget: Fareed Zakaria-type notions of “post-Americanism” and a “tectonic power shift” toward the East. Yes, America will be affected by the global depression that is coming, but other nations will be affected more. We are the power of last resort in the international system, and we will emerge from this global crisis stronger.
Will we be as dominant as we were immediately after the Second World War? Undoubtedly not. But we probably will end up stronger than we were after the end of the Cold War. Welcome, my friends, to the Second American Century.