Inverted yield curves forecast recessions. When longer term interest rates are below the short term rate, a recession and even a depression is assured. With interest rates at zero, a negative or inverted bond yield curve is impossible. But in the real world, with real inflation at around 5 % we should have 3 % interest rates. Long term bond yields are at 2 %. Such low yields are forecasting another recession.

One of the ploys used by the central banks is to keep the bond market quiet is to post zero interest rates. It is hard to have negative future yield curves when current real rates are negative [nominal rate less real inflation]. Our current negative rates of about 4% are a travesty. They destroy savings [no interest paid]; distort financial investments [all hail King equity, since there is no other place to put your money]; and destroy real world family budgets [low rates plus more money supply equals inflationary destruction]. Zero interest rates are a political gimmick. They show that the big brains are 'doing something', 'deeply concerned' and are trying to stimulate the economy. In reality they simply distort financial flows, punish savers, and breed future inflationary pressures whose effects will be worse than the supposed 'cure' of negative rates. Nothing in economics is for free – including 'free' money and negative real rates.

Are we already in a depression ?

FP: “When the five-year treasury yield is still south of 1% and the 10-year note is down to 2% after a period of unprecedented government bailouts and stimulus programs, then it can only mean one thing, says David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates.

“If market rates are at Japanese levels, or at 1930s levels, then it’s time to start calling this for what it is: A modern-day Depression,” the chief economist and strategist at Gluskin Sheff + Associates said in a note to clients this week.

..If the treasury market is correct in its implicit assumption of a renewed contraction in the economy, then we could well be talking about corporate earnings being closer to $75 in 2011 as opposed to the current consensus view of over $110,” he said in a recent note. “In other words, we may wake up to find out a year from now that whoever was buying the market today under an illusion of a forward multiple of 10x was actually buying the market with a 15x multiple. How’s that for a reality check?”

The current stock market is a bubble. If rates were normalized there is little chance that so much money would be flowing into Apple or even bank stocks at this stage of a non-recovery. This is why gold and silver will do even better post the current stock market bubble. At some point in our life-time the powers that be will have to raise interest rates. When that happens money will flow out of equities and into bonds, fixed income assets and precious metals. Future inflation is a guarantee – as is most likely an ugly recession. Typically when there are bank and sovereign defaults, two or more recessionary contractions occur. This time will be no different. The real fun should start in 2013 when the Euros try to roll over hundreds of billions in Euro-land debt.....buy gold and silver and buy often. They are nowhere near their historic highs, and even if they were who cares. Unlike colored paper money, they have inherent value and worth.