New Gold - Part the Fifth

Here we go again. There are upsides and downsides to the US Buck being the world's Reserve Currency, aka New Gold. One of the side-effects, in both directions, is on domestic interest rates. Many's the time these missives have called out the repercussions of rate inversion. Well, here's some more reporting on where we are.

It has been a long bull run for both stocks and bonds, and borrower defaults have been at historically low levels for years. As has the spread -- the difference between the yields -- of Treasury-backed securities and riskier bonds. But as interest rates continue to rise, and some companies and other borrowers fail to meet their debt obligations, defaults will inevitably increase along with the spreads.

The implication, of course, is that longer term private debt has been written at artificially low rates, and thus high prices. Again, there's nearly $2 trillion in idle money just on corporate balance sheets (see recent missives). Not to mention the 1% and .1%. All seeking 10% and no risk.

So, that reporting was a few days ago. Today we hear another siren, sounding in Turkey, of all places. Much the same as China over the last decade or so, lots of real estate building. As the saying goes, there's only so much time and so much land. You'll never get the former back once it's gone, and there's no more of the latter. Easy money in real estate.

Mr. Lee noticed that Turkish banks were borrowing in dollars to make other loans to fast-growing Turkish companies. He also saw that, over all, Turkey's economy was growing more reliant on financing from foreign investors. It struck him as similar to what had happened to Thailand in the years before the Asian financial crisis in 1997.

Gold giveth and gold taketh away. As with the Great Recession, lots of idle money, unable to find productive homes in physical capital, chases real estate.