Everything is fine. /S
Perhaps the handwriting is on the wall (cough).
Nonetheless, there are folks that believe all is peachy.
It’s been Depression II for me for several years but obviously not everyone. But more than the gov’t admits.
Basically, if you deposit 100 dollars in a European bank, instead of PAYING you annual interest on the deposited cash, they will CHARGE you a specific amount for the privilege of keeping your money in their vaults. At the end of the year, you will have less money in your account than what you started with.
We in Freeper finacial threads have been arguing since 2008, whether we should have taken our medicine then rather than postponing it. It was my opnion then that we should havelet it play out, and rebuild from there.
In my 35 yrs. of investing experience, I have never seen such a quandary of the lack of anything decent to invest to get decent safe returns. This house of cards is going to crumble, the only really question is how bad is it goinng to get. I have prepared my portfolio for a 50-75% correction.
I have no idea. I just know I can’t get one percent on my money and I refuse to get in a stock market that is propped up by the Fed. I would if I were younger, as I could dollar cost average but I’m long past retirement age and need instant liquidity. I think this perverse in the extreme. But no matter, that sorry old lecher Bill Clinton can get $700,000 for a speech full of nothing but feces. What happened to the days of a nice three or four percent return compounded daily with instant liquidity? We’re awash in a sea of debt and they mean to keep it that way.
mark for later reading
Potemkin Economy.
This is really hard to explain (I’m having a lot of trouble with it myself), but a few things are coming into focus.
Debt looks a lot like money. Schemes to use debt as money, in the past, have usually collapsed rather quickly (like blowing out a credit card), for obvious reasons.
If the mint coins a $20 coin, and you perform a service, getting it in return, you have $20 and no one is indebted thereby. Of course, you have that coin and no one else also has it.
Paper money is not like that. A lot of it exists as ledger entries, or electrons, and a lot of the positive balances represent someone else’s debt to the issuer (which debt, in the beginning of a paper system, is usually paid back with interest).
But men are not angels, as the saying goes, and debt-as-money requires strong regulation to make it work, because when you have $20 as a ledger entry as opposed to a $20 double eagle, a lot of people have the same $20 at the same time.
What’s new under the sun (the underlying concepts are not new) is that the powerful producer countries have entered into various compacts to ALL use paper as money, and to maintain the fiction of someone’s future productivity as “backing”, or assurance that the hundreds of trillions of obligations allowing the printing presses to roll are good.
But they’re not good, they’re just postponed.
The 102 year run of debt (or credit) as money is coming to an end. When, where, and how has not been revealed. But end it will.
Every bond (debt) market on earth is distorted, to the point where deflation has been institutionally created. In a short 4 months we have gone from all German bonds trading at a positive rate to 70% of them trading at negative rates. How long before they are all negative? A few more weeks?
This is a tectonic shift that no one is talking about. This is destruction of capital and wealth on a global scale.
Here is the real bad news, not only is there is no theoretical limit to negative rates, the rates don't have to go that far negative before the whole system is kaput.
Other than that, there is no problem in the foreseeable future.
Ping
Doesn’t the very term “negative interest rates” indicate something is very, very wrong?
The worldwide controlling politicians and financial leaders had a choice after the financial meltdown (as well as the run up to it because their derivatives, etc, caused the meltdown):
1) Repair the damage, over time and at great costs to all, by letting the losers (them) take their lumps and bear their huge losses which would have further wrecked the economy but then it could start anew on a sound footing.
2) Continue to rig the game with continued zero interest rates, QE forever, even more derivatives, etc. to further rob Main Street (that’s you and me) and enrich themselves. Not just in the USA but in all developed countries and financial systems.
Which did they choose? Hah, we know the answer to that. But now they don’t seem to know how to stop the madness they have wrought.
Its nearly common sense - how long can governments expect people to PAY THEM (negative interest rates) for the pleasure of holding their debt.
It would be like the bank paying me to take a mortgage from them.
How sustainable is that?
Also, the US Government now pays about $250 billion per year on interest on old debt alone. And interest rates are at historical lows. If interest rates went to normal levels of 10-15 years ago - that debt cost would rise to $750-800 billion. Where will the US Government find money for that?
You can thank the corrupting effects of Central Banks for this, supporting the spending addiction of politicians.
Here is the practical:
Take all of your wealth denominated in “paper” and turn it into tangible assets.
Prepare to go through a tumultuous period of multiple months where no financial instruments work at any level.
On the other side of the crisis, turn some of your tangible assets into the new coin of the realm, whatever it may be.
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.
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.
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.
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.
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?
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.