Have fun together. Every week, and sometimes it seems every day, there are all sorts of opportunities to have fun together. Hikes, horseback riding, golf, dinners out, wine tastings, local festivals, the weekly craft group, special events… there are nearly endless opportunities to reach out and engage with other members of the community in fun and interesting ways that help cement relationships and promote goodwill.There’s more, but those seem to me to be the basics.I have come to the conclusion that pretty much every community is the same – and that they are all living, breathing organisms. That organism can be healthy and happy, it can have good days and bad, it can become dysfunctional and even dangerous (the disturbing article I recently reprinted on the war in Bosnia provides a good example of the latter).The difference in the mindset of the community will depend on a number of the factors, most wrapped up in the complexities of human nature. While those complexities make it close to impossible to guess what will happen next, from my personal observations, for a community to thrive, it requires real commitment from its members.That has probably been the biggest revelation in all of this. That a community needs everyone – or at least a solid core – to work together in good faith to keep it moving in a positive direction.This awakening to the idea of being a part of a community of people has caused me to reflect on how the same dynamic operates on a bigger population.The Government of the People Is Just PeopleMany people, myself included, like to refer to the “government” as if it was a separate entity (typically made up of some sort of lower life form). In reality, it’s just a group of people. Sure, many in that group may have an aberrant psychology that draws them into a career of professional meddling, but they are people just the same.In essence, the individuals making up the government of a nation-state are comparable to the board of directors of a homeowners’ association. If operating properly, then that HOA board listens to the concerns of the broader community and implements constructive solutions that do no harm in the process.On the other hand, when the people in a government become collectively dysfunctional – when, for instance, they overstep their authority to meddle in the economy for philosophical reasons, or to favor a certain constituency without regard to the unintended consequences – it will inevitably lead to an economic train wreck and otherwise cause havoc within the community.Imagine, if you will, a community of 100 people where a small cadre of, say, five people held complete power – even over life and death – and who became unhesitant in abusing it for personal or philosophical purposes. In such a set-up, the possible outcomes are as varied as they are worrying.Well, in countries around the globe, that very set-up, but on a larger scale, now exists. Thus you can have a European Union where rules are passed requiring Portuguese fishermen to burn their boats, or an American president decides it is acceptable to use drones to regularly assassinate people on the other side of the world, collateral damage be damned.In the case of the latter, Obama is just another human with his own particular subset of the same good and bad character traits found across the human spectrum. The only difference is that those character traits are amplified by the amount of power he has been given.Importantly, there is one character trait – self-interest – that invariably informs every human action.It’s easy to understand why self-interest trumps everything else: Over the millennia humans lacking a healthy sense of self-interest were soon deleted from the gene pool.In a smaller, well-functioning community, self-interest might be expressed by people complaining about workers leaving garbage by the side of the road, which, in addition to being unsightly, may reduce property values. As the people in charge of the homeowners’ association share that interest, and furthermore don’t want to be subjected to complaints down at the clubhouse, they will take steps to fix the problem.In a dysfunctional nation-state, however, self-interest among the population often leads to demands for an extra measure of slop from the public trough, or for concessions and regulations so that a business may gain a leg up on would-be competitors. (In the latter category, I love the long licensing process and rigorous testing demanded of want-to-be hair dressers in most US states.)Attuned to every opportunity to suck up to the voters, and attract or retain contributors, it is entirely to be expected that the politicians will respond to these requests from the community, even to the extent of printing up hundreds of billions of currency units to spread around, whatever the consequences may be.Furthermore, when squeezed to take some sort of action to curb the money printing/spend-a-thon, it is entirely natural that they will firmly resist, trotting out all manner of threatening or heartrending worst-case scenarios for why the cuts shouldn’t be made.And so it is that the logical and pressing need to address a fundamental problem facing the world – excessive government debt being made worse with each passing day by historically unprecedented levels of deficit spending – is set aside in favor of political expediency.By ignoring the consequences, the leadership dooms the community to an epic failure.Some ConclusionsIn the case of a small community, the leadership has to face the community members on a daily basis. That results in a certain social restraint against really bad decisions.In the nation-state, however, the leadership is so far removed – isolated even – from the community that it feels no personal inconvenience from bad decision-making. Of course, a democracy is designed to incorporate a mechanism – the voting booth – for punishing bad decisions.In reality, however, this aspect of the system has been entirely gamed thanks to the money printing just mentioned. Carrying the vote is as simple as deploying those currency units to serve the self-interests of a sufficient number of people come election day.Importantly, however, the money printing can’t void fundamental reality. And the fundamental reality is that the money printing is just making the truly dangerous fiscal and monetary situation much worse. As a consequence, the failure of what has become a deeply dysfunctional community is inevitable.Earlier I mentioned that for the first time in my life, I feel invested in my community. That’s because as the Argentines like to say, I have come to the conclusion that this is “Mi lugar” – my place. Simply, it has everything I feel is essential to living an extremely high quality of life, far outweighing the negatives of life in a rural town far from anywhere (which I tend to find amusing, as opposed to the US, where the negatives seem increasingly dangerous to me).That said, with my newfound appreciation of community, I understand that many Americans feel the larger community they belong to is worth trying to save. And so they diligently show up every voting day and in between attend rallies for a return to some sort of fiscal, political, military sanity.Unfortunately, they are in the minority compared to those who view the government as a near-magical organization able to suspend fundamental reality and solve every problem by passing yet more legislation and by printing up pallets of fresh currency units – all for the purpose of providing the community with a life unfettered with financial worries.Making matters worse, this mindless majority is unwilling to roll up its sleeves and actually do the hard work necessary for a healthy community to persist. Instead, it looks to the productive few to keep their shoulders hard against the grindstone, then turn over the bulk of the fruits of their labor to the state to redistribute.This is not a formula for success but for failure. And, unless something dramatic changes, fail it will.Personally, I am more convinced than ever that the decision to move to this small town, and to be part of this community, was the best possible move I could have made for me and my family. I know this place, or off-the-beaten-track places like it, won’t suit everyone. Regardless, I think it’s important to pause for a moment to assess the health of your community. If it is failing, and you are powerless to stop that from happening, spending time casting about for more vigorous climes might not be such a bad idea.And the money printing is only one way in which the dysfunctional leaders undermine their communities. Another is manipulating interest rates.On that front, Casey Research Chief Economist Bud Conrad has been watching the credit markets and provided this update on interest rates that makes for a good background for the more detailed analysis he provides in this month’s edition of The Casey Report.The Bond Bubble Is About to BurstBy Bud ConradIt is my contention that the 70-year debt supercycle has come to an end.To put the current financial situation in perspective, here’s a long-term history of the debt-to-GDP ratio, which reached a record high at the beginning of the current crisis. It was a dramatic change in 2009, unlike anything since the aftermath of the Great Depression.(Click on image to enlarge)The highest the debt-to-GDP ratio had previously been for the United States was 301% at the bottom of the depression in 1933 when GDP collapsed and debt was high. The level became unsustainable in 2009, despite low interest rates. Weak borrowers were signing up to finance houses that they thought would increase in price forever. The point of the chart is that this downturn is different from all the recessions since World War II.Total market debt includes debt of the federal government, state governments, households, business, financial institutions, and to foreigners. The components of the above total debt are shown below, so you can see which ones are stabilizing and which may be approaching unsustainable levels.Looking forward, the most important problem is that the federal government has inserted itself into the economy with huge deficits to try to combat the slowing of the private sector. As you can see, private-sector borrowing has not increased, even as federal government deficits have ballooned to unprecedented levels. In essence, we are building our recovery on government debt.(Click on image to enlarge)The clear driver of this extreme expansion of government debt that I call a “Bond Bubble” is the Federal Reserve’s flooding of markets with liquidity to drive rates to zero. The chart below shows a projection what will happen to the Fed’s balance sheet as it continues to distort the rate to zero by extending its monthly purchases of $40 billion of mortgage-backed securities (MBS) and $45 billion of Treasuries out to 2016:(Click on image to enlarge)It is my contention that the actions of the Fed, which were started to counter the credit crisis of 2008 with four programs of quantitative easing, have brought us the incredibly low interest rates (aka, the Bond Bubble) we have today. By purchasing so many credit assets, the Fed is driving the price of bonds higher, and thus interest rates much lower, than they would otherwise be.The black line in the chart above is the 10-year Treasury rate – you can see that it drops with each of the big balance sheet expansions. The resulting asset bubbles in stocks and housing are a direct result of the monetary creation by the Fed.The growth in Fed purchases will likely continue so that the low rates of the Bond Bubble don’t collapse. But the effects of the Fed’s economic stimulus decline with each new injection of money.There will come a time when the Fed announces a new program of balance sheet expansion by asset purchases that will cause the interest rate to rise because of fears of inflation from money creation, rather than fall as the Fed desires. At that point, we’ll know the Fed’s power to manipulate the economy has dissipated.Just How Low Can Interest Rates Go?The chart of 10-year Treasuries below shows that the current level of 2% is lower than it has ever been, except for a brief low of 1.5% last fall (blue line). It is the lowest in 240 years. This is happening in spite of government deficits expanding at a trillion dollars per year as far as the eye can see. We are at the bottom of a 32-year bull market in bonds (drop in rate).To get a view of how extreme today’s rate is, I added the red line, which is 100 divided by the interest rate. It shows a rise as rates fall and makes the bubble of low rates more obvious – which is currently higher than ever.(Click on image to enlarge)The point is that these extremely low rates are unprecedented, even when looking back to the last Great Depression. They could spring back a long way.The low rates induced by the Fed are transmitted to many other market rates, as shown in the following charts. These charts need little comment, except that all of them confirm the simultaneous movement to many-decade lows.(Click on image to enlarge)During the credit crisis, junk bonds were the worst performers as investors feared they would lose their money in default. Rates rose on BBB corporate debt as well. At the same time, government debt became the safe haven, and as people moved to the safe haven, they drove the price of Treasuries up and their interest rate down. The premium has gone out of the lower-rated markets, with rates even lower than before this crisis started. It’s not that risk has disappeared: I think it is more likely that the flood of excess money is chasing any kind of return it can find, and that is driving rates to record-low levels.(Click on image to enlarge)Inflation spiked dramatically in the 1973 and 1979 oil crises. More recently, official government numbers haven’t shown wild inflation. Prices for energy, food and domestic services – like medical care and education – have had big jumps. But thanks to cheap foreign manufacturing, we are able to import goods at attractive prices, so overall inflation doesn’t reflect the extreme money creation by the Fed. Wage growth is nonexistent, largely due to foreign competition and high unemployment from offshoring manufacturing.The forces of inflation can easily overcome a weak economy to destroy a currency: this has happened in countries like Zimbabwe, Argentina or Yugoslavia. Once things get out of hand, it is hard to say whether it is the weak economy that causes the government spending and further deficit destruction of the currency, or the reverse. But that doesn’t matter once people lose confidence in the government and its paper issuance.The chart below shows government numbers for inflation that seem awfully low compared to what most people experience. The erratic behavior of commodities is likely to continue, so I think prices will continue to rise.(Click on image to enlarge)But even using these conservative government numbers, when we subtract the inflation from the interest rate to show the real return to an investor, we get negative numbers. This, too, is unsustainable.A Look at Interest Rates WorldwideI’ve written extensively in previous articles about central bank expansion, but it’s worth reminding ourselves that excessive money creation is not just a US phenomenon but a worldwide experiment. Once this feeds back on itself as ordinary people recognize the destruction of the fiat currency systems, we can expect inflation on a worldwide basis. The similar decline in interest rates in Germany and Japan is the result of their central bank interventions to support their economies by driving rates lower.(Click on image to enlarge)The chart below, which shows the interest rates of 187 countries, has some underlying patterns. At first blush it just looks like spaghetti, but if you step back, you can see that rates were rising into 1980. Then many fell until the recent crisis, after which new deviations appear. In Europe, rates went both ways: up for the PIIGS and down for the safe havens like Germany.(Click on image to enlarge)And here is a simplification of the above by just averaging the numbers to a single line in which you can see an imprecise confirmation that, despite wide variability, there is an underlying pattern in world markets.(Click on image to enlarge)The above six charts confirm that rates of all kinds are at 50-year record lows.Debt and Interest Rates Suggest Higher Rates Are PossibleThe chart below shows the comparison of Greece’s growing debt (in blue) and the resulting rise in interest rate. You can see that as Greece’s debt to GDP rose above 100%, the interest rate rose toward 20%. Lenders lost confidence in the ability of the Greek government to actually pay back its debt.(Click on image to enlarge)In contrast, the stronger countries have been able to accommodate their government debt increase and still maintain moderate interest rates. The United States is shown in the following chart. Central banks have aided the government in managing to keep rates low despite big deficits, by buying the debt. Balance sheets of the world’s central banks are growing rapidly to support government deficits while forcing rates to low levels. It is a bubble.(Click on image to enlarge)When you buy Treasury bonds, you are putting your fate in the hands of the government, expecting it to give back your purchasing power and a reasonable amount of interest to you, in return for the use of your money. Should you trust these authorities with your money? I believe we are headed for a serious loss of confidence in the value of the dollar, which will be accompanied by a burst of the Bond Bubble.This Ponzi scheme is getting ready to explode.Read More in My Article in The Casey ReportThere are few more important aspects of today’s economic situation than just the popping of the interest rate bubble. In the current edition of The Casey Report, I present my latest proprietary research, including nine charts that every investor should see.You can take a three-month trial of The Casey Report, which also allows you to view the complete archives featuring in-depth reports on the best ways to invest in the current markets. It comes with a 100% money-back guarantee – if you are not thoroughly impressed, simply cancel for a full refund. Click here for details and to sign up for your risk-free trial today.Friday FunniesFinancial PlanningDan was a single guy living at home with his father and working in the family business.When he found out he was going to inherit a fortune when his sickly father died, he decided he needed to find a wife with whom to share his fortune.One evening, at an investment meeting, he spotted the most beautiful woman he had ever seen. Her natural beauty took his breath away.“I may look like just an ordinary guy,” he said to her, “but in just a few years, my father will die and I will inherit $200 million.”Impressed, the woman asked for his business card and three days later, she became his stepmother.Women are so much better at financial planning than men.Sex Survey – the Results Are In!It has been determined that the most frequently used sexual position for older married couples is the doggie position.The husband sits up and begs.The wife rolls over and plays dead.And Finally…Yesterday, four days after the Serenata, sitting at my desk overlooking the street in town, I glanced up to see a truck slowly driving by… followed by a large trailer with open bars containing five full-grown Bengal tigers. And that was followed immediately by another truck pulling a cage full of African lions.Talk about unexpected scenes! Guess the circus is coming to town.And with that, I will sign off for the week by thanking you for reading and for being a subscriber to a Casey Research service.David GallandManaging DirectorCasey Research Be yourself. Don’t try to impress others or to shape your views so you’ll fit in. Communities are made richer by including interesting people who march to their own drummer… provided you don’t drum outside their doors into the wee hours. (Unless you are an Argentine, who don’t seem to be discomfited by loud banging noises at any hour of the day.) Be tolerant. Not everyone is going to see things the same way as you. Be respectful of the views of others. It’s not always necessary to prove that your point of view is more correct than that of others (even if it is!). Listen. We have started having community meetings every two weeks so that any of the issues that inevitably arise in a community can be aired and the appropriate actions taken. The meetings have quickly evolved into what I view as upbeat and positive working sessions. Dear Reader,When I last wrote, I concluded with a comment on the high level of activity and energy here in my adopted hometown of Cafayate.And never is it busier than during the annual Serenata, a festival celebrating the folkloric music of the region. While the estimates vary depending on whom you speak to, about 20,000 additional people stream into town from all over the region, approximately tripling the town’s usual head count.Bursting to the seams, almost literally, the pueblo’s simple streets become a continuous parade of festival-goers, more often than not packed seven to eight to a car with happy songs pouring out of all windows. Likewise, buses chug by with full bands assembled in the aisles, enthusiastically singing and playing a variety of instruments, including large drums.Large families, old gauchos, hippies (or at least that’s what they used to be called), and sundry teens and twenty-somethings all come together for three nights of lively music and good times.And, boy, do they have a good time. The music goes on all night, with the whole affair ending in a crescendo at 8:00 am on a Sunday morning. Even though the house we are currently staying at in town is located on the opposite side of town from the walled-in festival grounds, and the walls of the house are thick, as the sun rose Sunday, we could hear what sounded like every person in town singing in harmony at the top of their lungs. Because, give or take a few, that’s pretty much what was going on.(Note that the photo shown here is taken not as the sun begins to set, but just after sunrise.)I attended the Friday night performances as part of a small group guided by a local coca-chewing, cigar-chomping cardiologist friend of mine and ended up dragging myself home around 4 am. As a consequence of my uncharacteristically late-night adventure, I was finally able to answer a question I have wondered about ever since I’ve started to come down here.Namely, why do the Argentines party all night at every opportunity… doesn’t it get boring in the wee hours? Well, I can now report that they do it because it’s a lot of fun, and no, it doesn’t get boring in the wee hours – it just gets more fun!In our case, we parked ourselves in a small café set up inside the festival grounds and talked, laughed, drank too much, ate costillas de cerdo, snapped pictures and soaked in the energy of the crowd. And, of course, enjoyed the music on a world-class sound system with a new group every 30 minutes – the best of the genre, as far as I can tell.One of the noticeable things about the crowd, and about Argentina in general, is that despite the wide range of ages and life stages, the crowd is almost completely homogenous, the result of the Argentine immigrants of yesteryear making a concerted effort at wiping out the natives and, for the most part, succeeding. In addition, unlike Brazil, the country never adopted slavery (other than around the fringes).Now, some may take this comment as politically incorrect, but in my view, the rush to embrace multiculturalism in so many countries over the last century has a decidedly negative side that is absent here in the Argentine.That’s not to say that there aren’t a lot of cultures represented in the mix, quite the opposite. Rather, it is that the Argentine immigrants – Italians, Germans, English, Irish, French, Basques, etc. – wholeheartedly embraced and integrated into the local culture. Naturally, there are still remnants of their heritage visible in the architecture, the food, the (Italian-style) politics – but there are few places in the world where the concept of a cultural melting pot has been more successful.Thus, even though the surprisingly well-organized festival was crowded with merry-makers and, as the night progressed, drunk merry-makers, there was zero friction within the members of the crowd.Quite the opposite: the festival-goers in their multitude positively radiate goodwill to mankind, hugging, joining arms and singing to the heavens (when not tossing flour and some sort of powdered coloring in each other’s hair).It’s the concept of community at its best.And that, dear reader, brings me in a circuitous manner to my actual topic for the day…Comments on CommunityMoving to a small wine-producing town in the Argentine has resulted in any number of positive changes in my life.For starters, my stress level has plummeted. Whereas before the move I periodically found myself getting unnecessarily agitated by relatively mundane things, nowadays almost nothing bothers me. That this reduction of stress has occurred against the backdrop of finishing the building of our house – a hassle anywhere in the world – is no small thing.And there’s no question I’m happier. In fact, hardly a day goes by that I don’t have to restrain myself from giving a happy little skip while walking down the street (and sometimes I even give in to the urge).I’ve lost ten pounds, improved my golf game and have a much more active social life. In addition, despite all the activity hereabouts, I have found time to work on short stories, a genre of writing that I particularly enjoy.I eat better, exercise more and drink fine wine for a fraction of the cost I’d pay back in the States. Importantly, I also pay next to no attention to the latest “big news” pumped out by the Western media. It just doesn’t matter.One result of living here that was entirely unexpected was a personal awakening to the nature and importance of community.In Vermont, I was largely disconnected from the community – in no small part thanks to my preference for next to no government interference in my life, a preference that runs contrary to the prevailing philosophy of most folks thereabouts who believe in the notion that the more government, the better.Somewhat paradoxically, in the Argentine outback, there is next to no debate about the role of the government. The paradox arises because the Argentine government is a paradigm of misguided policies. But because everyone knows it is inept and its actions counterproductive, unlike in the US, there’s no one to rise to the government’s defense.While back in the States, Obama, Biden, et al. enjoy a lofty role in the media, here no one pays any more attention to officialdom than is absolutely necessary. They are universally viewed as the clowns down in Buenos Aires whose every dictate and mandate is, like in a game, a minor annoyance to be dodged at every turn.Underscoring the point, the other day I made a passing comment on the government’s latest blunder to my good friend Pelado, the owner of the café next door. To which he smiled and remarked, “David, is the sun not shining? Is the food or wine not good? Is life not tranquilo? So, what’s the problem?”Hard to argue the point, not that I’d want to.But I drift from my main theme, namely my awakening to the idea of being part of a larger community.You see, living in a community that broadly shares similar views – in other words, a community that lacks the cultural and political friction that so dominates American life – has encouraged me to interact with my fellow community members on a far more nuanced and interesting level.That’s not to say every interaction has been entirely pleasant – how could they be when dealing with the complexities inherent in human nature?Naturally, the Argentines are completely in sync with the local culture, and so our interactions are free to revolve entirely around living the vida bueno. And I can say without reservation that the Argentines have been universally pleasant, helpful and otherwise warmly welcoming.The challenges, and where much of my personal growth has come from over the last four months or so, come from my interactions with certain members of the fast-growing international community in La Estancia de Cafayate where our new house is just today being completed.In my view, it is not a matter of people being right or wrong, but rather how well certain people are able to adapt to a different culture. Having lived in Argentina before – and gone through some of the inevitable frustrations in transitioning into a new culture – my wife and I knew exactly what to expect on moving here.As a result, when the bureaucrat down at the local government office charged with handing out license plates tells me they will be ready on Monday, then on Monday tells me it will be Thursday, then on Thursday tells me it will be next Tuesday, I smile and thank them for their time, secure in the knowledge that one of these days, the license plates will actually appear.In the interim, it’s all to the good that no one hassles me in the slightest for driving around town in a truck with no license plates, a trick you couldn’t pull off in the US for more than about 100 yards before being pulled over.It is understandable, however, that someone without previous experience with living in a laid-back culture such as this, a culture where time is almost entirely relative, can find the transition frustrating. Also understandable is that certain personality types, on becoming frustrated, will complain at what seems to be every opportunity.At first, I found myself getting annoyed at the handful of negative apples in the community. But that was before coming to accept as entirely normal and natural that, confronted with the same scenario, people within any community will respond differently, but in ways entirely within the range of possible human reactions. Some will laugh, some will cry, some will tend to anger.The point I am slowly grinding towards is that for the first time in years, maybe ever, I have become completely invested in a community. In this case, a group of individuals living within the same geographical proximity and each of us with our individual character traits, some strong, some weak.In contrast to Vermont, where I increasingly isolated myself from my socialist neighbors, here I am actually engaged and excited about working in concert to keep this community strong and moving forward.This revelation was like waking up one morning in a completely different world, a world with different rules of engagement that need to be learned in order to survive and thrive. While I am still learning the baby steps of being part of a community, in my mind, the lessons learned so far include…Be positive. No one likes to be around negative people. Rather than constantly complain about things, try to find constructive solutions. Be helpful. The members of the community are very good with this point, bringing each other vegetables from their gardens, picking up things for others when traveling to the big city, lending furniture if someone needs some, etc.