Posted on 08/21/2019 7:05:04 AM PDT by Leaning Right
I wish I had seen your post before I asked the question regarding the Germans buying their own bonds. Thank you for answering .
Think I’ll pass on this German offer.
You don't need a PhD in Economics, you just need millions of dollars.
If you have $100 million, you can't just open a savings account at a bank. If the bank fails, you lose your money. (The FDIC only covers the first $250,000.) You need to park that money somewhere.
If you're afraid the stock market is going to crash in the coming years, you don't want to park your money in stocks, since if the market declines 40%, your net worth declines 40%.
So you put your money in Government Bonds, on the theory that in 30 years you'll get your principal back.
So in essence, a negative yield bond is you paying the government to hold your money for you.
> Is this a superior investment when compared to my Nigerian banking? <
LOL. I’d stick with the Nigerians if I were you. Not only is your money safe, you will occasionally be offered great deals on secret shipments of diamonds. You’ll have to pay a fee in advance. But that’s to be expected.
You would be correct on measures to take, but in their case....they’ve signed up to massive revenue-costing public measures, and can’t possibly to cutting the budget. If anything....they probably would have to raise all taxes by 20-percent in the next five years, if they intend to carry out even ten-percent of their ‘promises’.
I have a mattress which can store cash with a better yield.
The argument is that holders will make money by selling the bond if interest rates go up.
- -
I’m confused. Wouldn’t the bonds go up in value only if future bonds were even more negative? Of course, why anyone buys a bond that pays less money, indeed actually taxes the original value, than sticking the money in a warehouse I know not.
“But then again, I don’t have a PhD in Economics.”
You mean like the one Alexandria Ocasio-Cortez has?
> So you put your money in Government Bonds, on the theory that in 30 years you’ll get your principal back. <
That makes some sense. But you are still taking on great risk. Because you have to hope that inflation will be essentially nonexistent during that time. Otherwise, the buying power of your money will be greatly diminished.
I guess there is no truly safe haven.
The loss on the yield is less than tax on the gain..................
Yes, and with the money we'll get, we can buy Greenland.
[If you have $100 million, you can’t just open a savings account at a bank. If the bank fails, you lose your money. (The FDIC only covers the first $250,000.) You need to park that money somewhere.]
So, to make money the speculators who are buying the bonds at a negative interest rate must sell them when the interest rate goes down even further to a sucker, ah, investor who believes they will go down even further. But doesn’t that depend on finding a buyer? And if there are no buyers, isn’t the bondholder just stuck with them until interest rates go back up? Which means the investor loses on the negative interest rate while he holds the bonds and loses on the value of the bond.
Did I get all that right? Sounds like a lot of risk for little reward.
Now you have it. the Federal Reserve a private bank creates dollars out of thin air and loans them to the US at interest. Every dollar in circulation is debt. That is how we ended up with $25 trillion in debt not from spending.
THat is why Trump has not opposed raising the debt ceiling because he understands that you cannot repay debt with debt. Only equity can repay debt.
After Trump gets reelected look for him to bypass the Federal Reserve and instruct the Treasury Dept to begin issuing their own debt instrument at zero percent. This will put dollars into circulation that do not carry debt and can be used to pay back our debt because they start out at par.
I’m confused. Wouldn’t the bonds go up in value only if future bonds were even more negative?
...
Yes. I corrected myself.
Government debt is highly liquid so typically not a problem trading them to the next sucker.
——In Germany, that has pushed the entire yield curve below 0% .——
So, which is worse, an inverted yield curve or a negative yield curve?
The negative yield curve on long german bonds might be the reason that cash fled to American bonds with a + yield that is in fact less than the yield on short term.
credit..... Charles Payne
Heck! Isn’t that what a ‘zero interest/coupon’ bond is? It is purchased at a discount and then redeemed at face value when it matures.
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.