"John Thomas Financial Special Economic Report: Deficits and Interest Rates, Separating Fact From Fiction" Available for Download on JTF Blog
A research report that shows no correlation between government spending, deficits and interest rates. The report, a piece by John Thomas Financial Chief Economist Mike Norman, analyzes historical data on government spending vs. long-term interest rates, surplus/deficit vs. long-term interest rates, inflation rates vs. long-term interest rates, and fed funds vs. long-term interest rates.
The John Thomas Financial Special Economic Report: Deficits and Interest Rates, Separating Fact From Fiction includes four charts reflecting thirty years of data from the White House Office of Management and Budget and John Thomas Financial proprietary economic research. Some key findings from the report include:
- While government spending rose nearly tenfold in the past 30 years, long-term rates have declined 73% in that same period.
- Long-term rates have declined steadily in the past 30 years despite large swings in the U.S. budget balance. In the past three years there has been an unprecedented (nominal) explosion in the deficit, yet rates have hit record lows.
- Looking at the period in question, rates did drop sharply along with a concomitant decline in inflation from 1980 to 1986; however, inflation has since hovered in the 2% to 4% zone while long rates have continued to decline.
- There is a very strong correlation between the central bank's overnight interest rate target and long-term yields.
"The evidence shows clearly that there is no direct correlation between high deficits and rising interest rates. In fact, history shows the inverse to be true in the case of countries that issue and spend their own currency," said Mike Norman regarding his findings.
The complete John Thomas Financial Special Economic Report: Deficits and Interest Rates, Separating Fact From Fiction is available for download on the JTF Blog.