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It’s difficult not to mention debt when it comes to the discussion of our economic future. You can see by viewing the chart below that the entire world (with a few exceptions) is heavily in debt. The G7 is approximately where it was debt-wise just after World War II. By the way, during the war the U.S. pegged the rate of interest in order to facilitate winning the war.

Adapted from Ritholtz.com

 We believe if things get out of hand, and the economy does worse than even we expect, the Federal Reserve just might buy all the bonds it needs in order to put a lid on rates, thus increasing liquidity. Also, if inflation does rear its ugly head during the next 3-5 years causing interest rates to accelerate, and as higher rates make our debt more difficult to carry, again they might buy all the bonds necessary to hold rates down.

 We don’t believe either of the above scenarios will come to pass, but let’s face it, if one or the other does then we as owners of long government bonds will get bailed out. Take that Wall Street!

 Speaking of inflation, please note the second chart which shows the trend of inflation over the last two years or so. We expect this trend to continue for the foreseeable future.

Adapted from Mish’s Global Economic Analysis

Central Plains Advisors, Inc.

Information contained in these commentaries is based upon information obtained from sources both external and internal which we consider to be reliable, but the accuracy of the information and the recommendations contained herein cannot be guaranteed, nor do they constitute a solicitation for the purchase or sale of any securities mentioned herein. Information contained in this commentary may not be reproduced in any form without written permission from Central Plains Advisors, Inc.

Disclosures: As benchmarks for comparison, the indexes used represent an unmanaged, passive buy-and-hold approach. The volatility and investment characteristics of the benchmarks cited may differ materially from those of CPAI. Please be advised that the comparison to the S&P 500 is not an apples to apples comparison, as they are a different class of assets. The account performance figures reflect the reinvestment of dividends and capital gains. Past performance may not be indicative of future results and does not guarantee positive returns. The performance results for 1991 through 2009 have been independently compiled by CPAs from information provided by CPAI. The period of 1991-1999 was one of generally rising stocks and bonds. The period of 2000-2003 was one of generally lower stocks, but rising bonds. The period of 2004-2007 was one of rising stocks and bonds. The year 2008 experienced a stock market crash and average bond market. 2009 experienced a strong stock market and positive bond market.