Dollars and Percents

I don’t think I’m going too far out on a limb here to suggest that mathematics is not the favorite subject of most people.  Money, on the other hand, seems to hold an endless fascination for many.  By subtle manipulation I intend to use the latter to hold your attention while I surreptitiously discuss the former.  If no one tells you of my plan, I may just get away with it.
We all know one dollar is made up of 100 pennies and that each of those cents is equal to a fraction of that dollar.  Thus if I say something is worth 25 cents, written $0.25, then we all know it is worth 25% of a buck.  Simple enough.

We also all know that interest rates in America are quite low.  How low is “quite?”  Here are some samples:  A thirty-year Treasury bond is currently priced to yield approximately 2.96%.  In other words, if you loan the U.S. government one dollar for thirty years, they will pay you interest totaling $0.0298 cents every year for the duration.  A ten-year note is quoted at 1.9%.  You do the math.  That’s $0.019 cents per year!  Shorter-term you can pick up either a three- or six-month T-bill, both dishing out .02%.  Here’s where the math really gets wild.  That would annualize out at roughly $0.0002.  Of course it is taxable so don’t spend it all at once.

One might ask, “Who in their right mind would lock up their money for any period of time at those rates?”  Well, you might ask that, but apparently the rest of the world isn’t.  The demand for our IOUs is quite strong; it even gets some of the credit for keeping rates so low although the Federal Reserve is also helping quite a bit in an attempt to stimulate the economy.  Given these rates of return, tell me, are you feeling stimulated to spend?