Posted on 04/29/2015 5:13:17 AM PDT by MeneMeneTekelUpharsin
Here’s an astonishing statistic; more than 30pc of all government debt in the eurozone – around €2 trillion of securities in total – is trading on a negative interest rate. With the advent of European Central Bank quantitative easing, what began four months ago when 10-year Swiss yields turned negative for the first time has snowballed into a veritable avalanche of negative rates across European government bond markets. In the hunt for apparently “safe assets”, investors have thrown caution to the wind, and collectively determined to pay governments for the privilege of lending to them.
On a country by country basis, the statistics are even more startling. According to investment bank Jefferies, some 70pc of all German bunds now trade on a negative yield. In France, it's 50pc, and even in Spain, which was widely thought insolvent only a few years ago, it's 17pc. Not only has this never happened before on such a scale, but it marks a scarcely believable turnaround on the situation at the height of the eurozone crisis just a little while back, when some European bond markets traded on yields that reflected the very real possibility of default. Yet far from being a welcome sign of returning economic confidence, this almost surreal state of affairs actually signals the very reverse. How did we get here, and what does it mean for the future? Whichever way you come at it, the answer to this second question is not good, not good at all.
(Excerpt) Read more at telegraph.co.uk ...
national debt under control?
well, just make interest rates negative, and that debt turns into an asset !
....
No, I am not the guru on the mountain top who one goes to for the world's secrets.
But the determination of the large banks, those with inside government information, to force consumers into a cashless society is a very very serious danger sign.
Your example of what happens to the Gold Eagle vs. what happens when paper money and electronic credit are used rather than the Gold Eagle make the picture very clear.
If the banks along with government regulations can force all money to remain in the banks, the banks can use that same money several times over.
Plus if things really go bust, they will seize the money just as the government and banks did in Cypress.
But short term, they can use your and my money to refinance their debt and postpone the day of reckoning.
Official inflation rate is 2%.
The interest rate on government debt is 1%.
Interest rate on debt is -1%, because you earn 1% less than prices are going up.
If depositors all over the world were to accept negative interest rates as their ROI wouldn’t that indicate that deflation is now predominant?
It isn't hype.
When the cost of borrowing money is negative, you can be sure that the financial markets are seriously skewed [destroyed?]. Some sort of crash seems inevitable, but it's often amazing just how long horrible conditions can endure.
In the end, it hinges on nothing more than the faith of the bondholders. Once that's lost, it will fall.
Don’t put your money there.
Are we heading this way?
We need to end QE prontissimo.
If you will all notice, this is another one of those LIBERAL, SOCIALIST and COMMUNIST idea. What stupid person would allow the government to charge them for putting money in their banks? It appears that we will have to go back to the 14th century, where businesses were done with “LETTERS OF CREDIT” from one “BUSINESS HOUSE” to another “BUSINESS HOUSE”. Historically speaking, this was how the “HOUSE OF ROTHSCHILD” came to being.
I wish I could get someone to lend me a 100,000 or so and then pay me a 1000 a month for borrowing it! ;-)
It’s a poker game were EVERYBODY is holding a crappy hand.
No one is gonna call. This is going to go on for a LOOOOOOOONG time.
No argument from me on that point. Unfortuantely, QE is basically monetary policy crack for our incompetetent government. Yellen keeps hinting interest hikes (snicker), but everyone knows what game the Fed is playing.
Good observations. My guess is that there will be a huge bloodletting, devaluation, and adoption of a worldwide currency. How each country lands in this mass realignment will impact geo-politcal events for hundreds of years.
Maybe the next president will give us a chairman who will end QE, pending abolition of the Fed.
LOL.
Isn’t this a deflationary activity. Since it is effectively taking money out of circulation and putting it back with the government treasury?
Could this be a means to allow them to take out all the surplus cash they rolled out after the 08 disaster, while also subversively allowing them to redistribute it as they please?
It’s basically a tax on the bond investors or capital class isn’t it?
I think they used to sell it to my Italian grandfather and call it protection.
Think we can make it that far? I have doubts at this point.
Quantitative Easing (QE) was devised as a way to get the economy moving again. It’s clearly failed to do that and two questions arise:
1) Why don’t the monetary authorities stop the practice, since it’s failed to work, instead of spreading it to still more countries?
2) Why is it failing to work?
The answer to the first is two-part. First, doing the same thing over and over and expecting a different result is a definition of insanity and maybe that’s the best answer. The second part, however, is that here in the U.S. the Fed’s bottom line will be severely threatened by a return to 4-6% short-term interest rates. The explanation for that is somewhat complicated and I won’t go into it here, but that means that they have a vested institutional interest in keeping rates low for an extended period of time, on the order of years, even as long as a decade or more yet.
The answer the the second question is difficult to determine, but here’s a best guess: If you look at assets other than money and money substitutes like gold and silver, they are all going up (land, stocks, bonds, art, commercial buildings, even housing again) and going up significantly. But if you look at the value of money, i.e., inflation, it’s also holding its own which is unusual. That is, the inflation rate remains near zero, so money is holding its value. Why? Well, my guess is that the damage being done to household budgets, and particularly the household budgets of seniors, is taking a much greater hit than the Fed realizes due to the loss of income on savings.
As those used to living at least partly on their portfolio income are forced to cut back their spending, their actions directly impact both the pace of economic activity and the inflation rate (which reflects primarily the prices of goods and services rather than asset prices). Today, the economy for the first quarter was reported as surprisingly weak, for example. Perhaps the loss of income on savings is having a far greater economic impact than the Fed realizes.
In a sane world, the Fed (and other central banks now following its lead) would quit trying something that isn’t working and possibly even reverse course. However, this Fed has a vested interest in low interest rates being sustained, so they are likely to continue the present course regardless.
Interestingly, the banking system doesn’t even need to make any loans to prosper if negative rates on deposits move to minus 2 percent or so. They take in the deposit of, say, $1,000,000, use $15,000 to pay expenses, pay back $980,000 at the end of the year, and pocket the remaining $5,000 as income earned. No need at all to lend out the money and take the risk it’s not repaid. If that sounds contractionary, it’s because it very likely is.
The result being if you have any money you pull it out of the banks eventually.
If you are left with some money, where should you put it?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.