Adventures in interest rates!

The night was ink-black and still as death as Jimbob and Ichiro walked along a deserted street in a town called Confidence. All the other bonds had gone home to bed hours ago, but something was bothering these two. Jimbob was a 10-year US bond by birth and in spirit. He was proud to serve a long tradition of helping the US government to fund bridges to nowhere and ill-advised wars. His companion was Ichiro, his Japanese counterpart. Ichiro was a little less proud and a little more world-weary, but still not ashamed of his duty in life. The two had been friends for almost as long as they could remember, despite the occasional difference of opinion. They had reunited on this dark, still night to carry out a mission both unthinkable and necessary. After hundreds of years of highs and lows, they finally had occasion to visit the Confidence Fairy.

The two bonds had worries, and they no longer knew where to turn to alleviate them–the Confidence Fairy was their last resort. Both of their countries had been rocked by economic crises in the past few years; America by a housing crash and Japan by a sustained period of sub-optimal performance that had lasted close to 30 years already. There were whispers that Japan had sunk into a liquidity trap, and Ichiro could personally attest to this theory by the distinctly liquid feeling he experienced often, as well as his competitive interest rates compared with those more mature than he. He chuckled, recalling how quickly his older brother Haruki, a 30-year bond, had lost his smug attitude as his yields fell and fell. He was now a shadow of a man–still valuable, but as his worth was derived almost entirely from deflationary expectations, much less robust than in old times. In order to restore inflation, the Expectations Imp had been summoned. However, he did not heed the call; he was thought to be in hiding, or possibly deceased.

Now, the bonds had weathered their fair share of crises, but this one was different. They felt the swoosh! of the debt hawks’ wings on their necks almost daily, and everywhere they turned, bond vigilantes lurked in the shadows, ready to take them down. The hawks and the vigilantes were nothing new, but they were growing louder and bolder as the bonds entered a period of mass procreation. Jimbob and Ichiro shuddered as they thought of the way their friends Spiros and Aitor, 10-year bonds from Greece and Spain, respectively, had been exiled from Confidence when they overpopulated the region. They were now allowed only on the periphery, bloated from the starvation and high interest rates that their new home in Confidence Wasteland had engendered.

The deficit hawks’ purpose was solely to reduce the bonds’ numbers and the bond vigilantes only wanted to raise interest rates up to untenable levels, both pursuits that posed existential threats to Jimbob and Ichiro. But these were not the catalyst for their visit to the Confidence Fairy on this dark and still night. In the past few days, the two bonds had caught word of a nemesis so fierce, they knew they could not defeat it on their own: the feral hog. The feral hog had not been created in a vacuum: it was the love child of the dithering of their longtime ally, Ben Bernanke, and the rare stumble of their most specialest frenemy, China. The unholy union had happened by chance, claimed some, in a bar in Dubai–but whatever the circumstances surrounding the creation of the feral hog, it was here to stay. The feral hog was known to act irrationally, and as its first act it had consumed noted rational market theory proponent Eugene Fama in one quick chomp (though were he here, he would surely have a good explanation for it). He will be rationally missed.

Jimbob and Ichiro now had good reason to believe the feral hog was coming for them: the feral hog had caused yields to soar to levels not seen in years (though by no means unsustainable…yet), which had ignited worries of an impending debt spiral. That and they had each received a letter from the feral hog that simply said, “I’m coming for you.” Even worse, the hog was threatening to take their extended family along with them–Ichiro’s cousin Nikkei and Jimbob’s great aunt Dowdie Jones were being held hostage by the feral hog, though it must be said that both are not known for their rationality, even in the best of times. Even so, the bonds knew they must act.

“The night is very dark, Ichiro, isn’t it?” remarked Jimbob glibly as they walked along.

“The night is still, too,” responded Ichiro.

The most boring conversation ever was suddenly interrupted when an enormous bear came lumbering out of the shadows. The two bonds jumped in surprise. Suddenly, the whole street lit up, displaying tables and tables of jam, handicrafts, and fresh meat amid a bustling crowd of bears with baskets, each jostling to get the best deal. Ichiro and Jimbob froze in utter terror. “IT’S A BEAR MARKET!!” they simultaneously cried.

Jimbob and Ichiro ran from the market and did not slow their pace until they saw the reflection of the moon on some gold. They had run outside the city limits, where the Confidence Fairy was said to reside, watching over the bonds from afar. Thinking they had found the elusive Fairy, they tentatively approached the shimmering mass.

“Well, hello there!” a voice exclaimed from the dark, still night air.

Jimbob and Ichiro fell to the ground, absolutely terrified.

“Don’t you two worry–it’s just me, Bitcoin! No reason to be afraid, I will only make you two as redundant as fiat currency will be. No longer will the evil government have control over currency, and no longer will soulless debts like you be allowed to serve the interests of the government and central bank. Crooks!”

Ichiro and Jimbob quickly recovered, smiling wryly as they got to their feet. “Phew!” said Jimbob, “I thought we had come across an actual threat for a second there.”

“Hey! Wait you corrupt instruments of fascism! You are living in a prison as long as you serve the government,” Bitcoin yelled at the two bonds’ backs. “Drat,” he said dejectedly. “Maybe I can inflate myself to pass the time.”

After a long while more, Ichiro and Jimbob reached a small cave. There hung a sign from the cave that read “CF.”

“Oh–this must be the Cystic Fibrosis Association’s headquarters,” mused Jimbob. Ichiro cringed, wondering once again why they were friends. “No, you idiot, that stands for–”

Before Ichiro could finish his sentence, he and Jimbob were whisked into the cave. They stood in the ink-dark and still as death space, desperately trying to see what was right in front of their noses. Suddenly, the light came on and each let out a gasp as they gazed upon the confidence fairy.

Will Ichiro and Jimbob vanquish the feral hog and avoid the death spiral?

Is it just fine if they don’t?

And just who is the confidence fairy?

Stay tuned for the next installment of…Adventures in Interest Rates!

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