Bond yields

How can bond yields go much further down than where they are?  Ten year bonds have been under 3% for long stretches since 2008 and are currently under that now.  What happens if the yield approaches zero?  It is a time value of money question.  Why lend money out at all if you get no return for it?  The only reason could be safety, but there are other ways to be safe, is there not?

If safety cannot be provided, then there aren't any reasons at all for buying bonds.  If it won't even provide safety, it is pretty much worthless.  By the same token, if someone borrows money, then they have to be able to pay it back with interest.  Otherwise, why should a lender take the risk?  It is all a matter of common sense.  

But when you start talking governments, common sense just might go right out the window.  Somehow, people with a little bit of power think they can repeal natural laws.  What goes up, must come down.  Congress may disagree with this inconvenient truth, but there it is.  No law can change that.

You can do just so much quantitative easing.  At some point unknown, lenders will stop supporting the system because it violates any common sense.  You need confidence in getting paid back.  Failing that, lenders will stop buying bonds.  Yields must go up.  But if the Fed wants to drive yields back down, it will only accelerate the process.  I think the reason is that if nobody wants the bonds and only the Fed will buy with funny money, then the debt will be seen as worthless.  Confidence is shattered.  They won't hold their bonds, nor will they buy more.  They will sell what they have and bond yields will start rising.  They will rise until the yields are high enough to reflect the risk, then the selling may stop.  The Fed will be helpless to stop this.

We are not at that point yet, but we are getting closer.  The government will have to get serious about getting its financial affairs in order, or this will get ugly.

The Fed is between a rock and a hard place.  Congress and the people have to help them out.  This means stuff has to be given up so that the government can pay for it.  You can't print your way out of this.  The only way out is to grow your way out, or just manage a decreasing store of wealth.  To encourage the former means a growth policy.  Failing that, the choice is for the latter and that won't be pretty.