As I write this, the 10-year yield for U.S. Treasuries is under 2%.  You can buy a 10-year bond and it will pay out less than 2% per year in interest, which probably doesn’t even keep up with inflation.  And who knows how high price inflation will be in 10 years when you get your last interest payment and your original principal back.

It is crazy though that the U.S. 10-year yield is higher than many other countries.  For example, Spain, Italy, and the U.K. all have 10-year rates that are lower.

In Japan, where the central bank is engaging in unprecedented monetary inflation, the 10-year yield for Japanese government debt is just 0.37%.  You can loan your money to the near-insolvent Japanese government, with all of its bloated debt, for the privilege of getting an interest payout of less than half a percent per year.

It is even worse in Germany, although slightly more understandable there.  The 10-year yield is just 0.16% as of this writing.  People in Europe are looking for safety and Germany is the least bad.  If I were in Greece with the threat of bank “bail-ins”, I would certainly consider putting some of my money into German debt, just for the possibility of getting a decent portion of it back.  It might be the best option available, especially if it is hard to buy and store gold.

This all represents fear.  People are looking for safety.  They don’t seem too concerned about inflation, even though central banks have been, or currently are, printing a lot of digital money.

I was surprised to see that David Stockman is predicting some kind of a deflationary situation to continue and get worse.  I agree with most of what he has to say, but I don’t think we are going to see any sustained deflation.  As Ben Bernanke once said, a determined central bank can always create positive price inflation.

Regardless of whether we ultimately see really high price inflation, it is important to realize that central bank inflation does great damage to the economy, even if it doesn’t show up in consumer prices.   It misallocates resources and hurts our living standards.  It misallocates savings and investments and causes less productivity in the future.

In terms of shorting the bond market, I still don’t think the time is right.  If we hit another recession, U.S. rates could easily go lower still. I don’t think we are going to see higher interest rates until we see a significant uptick in price inflation.  Right now, the CPI numbers are coming in too low.

Since there is little perceived threat of price inflation and there is almost no chance of default on U.S. government debt (in nominal terms), rates are staying low, even with the Fed’s current tight monetary policy.

There will probably be a day when shorting bonds will pay very well.  That day is not today or tomorrow.  It probably won’t be in 2015.