Set forth below is the text of a comment that I recently put to another blog entry at this site:
and stocks would be indistinguishable from bonds.
The returns on non-stock asset classes ARE generally determined by market forces (rather than by the productivity of the U.S. economy).
So there is a legitimate point to be made that, if the risk of stock investing was reduced by 70 percent and the long-term return on stocks remained stable, there would need to be some adjustment in the returns paid by asset classes like certificates of deposit.
If stocks carry little risk and CDs carry little risk, you can’t have stocks paying 6.5 percent real and CDs paying 3 percent real. Those numbers need to move closer to each other.
Please note, though, that it is not the stock number that is likely to move. Our economy is an established one. The productivity of established economies is generally stable. The stock number might move down to 6 percent or so. It is not likely to move much lower than that.
So for the numbers to come closer together, the return on CDS must INCREASE.
The banks that sell CDs offer as low a return as they can get away with and still sell the CDs. Today, they can sometimes get away with paying very low rates of return because the relentless promotion of Buy-and-Hold strategies has made investors so emotional about stock investing. All that changes once we open the internet up to honest posting on safe withdrawal rates and scores of other critically important investment-related topics.
Investors will no longer have a bias in favor of stocks once we permit honest posting and it is possible for them to become educated as to the realities. That means that they will demand that banks offer higher CD returns or they will refuse to buy CDs. The banks will comply.
We will all not only enjoy far higher returns from stocks at greatly reduced risk following the end of the Ban on Honest Posting. We will also enjoy higher CD returns. It’s a win/win/win/win/win.