Michael Young submits:

The current coupon on 30 year Treasuries is 4.25%. The yield until redemption is 4.32%. (Source: Bloomberg and CNN Money.) Since 1967, the average annual US rate of inflation, as measured by the urban consumer price index, has been more than 4.50%. (Source: Bureau of Labor Statistics.) If you strip out the fairly unattractive income and just focus on a ,000 30 year bond investment, the real purchasing power of that ,000 subscription in 30 years’ time, if we continue to suffer the same long term CPI rate of circa 4.50%, is ,512. Unattractive? I think so.

Let’s also look at the shape of the US budget deficit and the ongoing borrowing requirement. This year the US government has borrowed more through new bond issuance than it has paid off. This is not an unusual occurrence. It has happened more often than not over the past decade. That’s why the US government owes trillions of dollars. The current US recession and bank bail-outs have further ruined the US balance sheet, moving it deeper into debt.

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