Long Term Rates Will Keep Dropping

Lacy Hunt and Hoisington Investment Management recently released their second quarter report on inflation and Treasury yields. Here is a summary of what they wrote—
· Higher debt levels reduce the Velocity of Money which in turn reduces GDP growth long-term.
· “Debt-financed government spending has only a limited and temporary stimulative effect.”
· Why? “Debt is an increase in current spending in exchange for a decline in future spending unless the debt generates an income stream to repay principal and interest.”
· Treasury yields may increase in the short-term a small amount, but the long-term powerful trend is for Treasury yields to continue to drop in the years ahead.