When Yields Go Negative....
We are not quite at the level when yields go negative but we are probably not far off. It is important to understand that when yields are negative it is effectively called a default. What that means is that the seller has no intention of ever giving a positive return on the bond sold. If it sounds just a little bit wrong, it is.
Japan has been doing this for quite a few years now and of course, Europe has joined it during the past ten years or so. To say we live in interesting times is an understatement. Something has got to give and it probably will before too long.
The inherent problem to this sort of thing is it creates a double standard of the worst kind. You already know about the income inequality going on globally right now where most of this low-interest rate money has found its way into the pockets of the wealthiest of individuals who really don't produce anything but rather buy new homes, new buildings, precious art and other things that don't do very much for anyone as they are simply hedges against a devaluing monetary system.
Central banks seem to have all sorts of weapons to ward off collapses and in truth, they do have a lot at their disposal when it comes to money. However, that is all they have at their disposal. Money. The money to buy assets or to manipulate market forces. It is not like they have some magic wand which will bring back manufacturing or industrial production. No. That has to come from entrepreneurs filling a need in the economy.
The problem when you reward financialization versus production is you are doing nothing to create any lasting gains other than to reward the players that least deserve to be rewarded. You see the fellows borring the money at negative interest rates lend out the money to people who have to pay positive interest rates such as mortgages, car loans and student loans to name just a few. These people don't have the right to line up at the trough like these other entities getting the money at zero or less than zero. The bigger problem is that it fosters a deep hatred by those that do not have for those that have. When I talk about the banks getting money and high net worth people, most people just shrug and say "well that is the way it works". There doesn't seem to be any thought at all that they are being cheated and disrespected by such a system. That they are allowing themselves to be abused by the top 1% at a level not seen in a hundred years or so.
You already know that such a system rewards the debtors and borrowers and the savers are left in the cold. It is supposed to stimulate the speed of money but all it really does is make the rich richer through no fault of their own.
The other problem you have is it blows asset bubbles with the hot money chasing after asset classes that are believed to be a store of value. Such as housing, precious metals, stocks and other assets of this nature.
While I am not one to complain about things unlikely to change it still boggles my mind how we have accepted this as "the new normal". I suppose it is better than the alternative which sees deflationary pressure win the day but at the same time, I can't help but feel that this is the wrong way to go. I think that this is a trap that you can't get out of once you venture down the path. It requires more and more creative ways to do financing at the cost to everything else. When times perhaps turn around you probably won't know because the tools that you used to measure how the economy was performing don't work anymore. Negative yields are likely just around the corner. When they come precious metals are your safest haven. Cheers!
Japan has been doing this for quite a few years now and of course, Europe has joined it during the past ten years or so. To say we live in interesting times is an understatement. Something has got to give and it probably will before too long.
The inherent problem to this sort of thing is it creates a double standard of the worst kind. You already know about the income inequality going on globally right now where most of this low-interest rate money has found its way into the pockets of the wealthiest of individuals who really don't produce anything but rather buy new homes, new buildings, precious art and other things that don't do very much for anyone as they are simply hedges against a devaluing monetary system.
Central banks seem to have all sorts of weapons to ward off collapses and in truth, they do have a lot at their disposal when it comes to money. However, that is all they have at their disposal. Money. The money to buy assets or to manipulate market forces. It is not like they have some magic wand which will bring back manufacturing or industrial production. No. That has to come from entrepreneurs filling a need in the economy.
The problem when you reward financialization versus production is you are doing nothing to create any lasting gains other than to reward the players that least deserve to be rewarded. You see the fellows borring the money at negative interest rates lend out the money to people who have to pay positive interest rates such as mortgages, car loans and student loans to name just a few. These people don't have the right to line up at the trough like these other entities getting the money at zero or less than zero. The bigger problem is that it fosters a deep hatred by those that do not have for those that have. When I talk about the banks getting money and high net worth people, most people just shrug and say "well that is the way it works". There doesn't seem to be any thought at all that they are being cheated and disrespected by such a system. That they are allowing themselves to be abused by the top 1% at a level not seen in a hundred years or so.
You already know that such a system rewards the debtors and borrowers and the savers are left in the cold. It is supposed to stimulate the speed of money but all it really does is make the rich richer through no fault of their own.
The other problem you have is it blows asset bubbles with the hot money chasing after asset classes that are believed to be a store of value. Such as housing, precious metals, stocks and other assets of this nature.
While I am not one to complain about things unlikely to change it still boggles my mind how we have accepted this as "the new normal". I suppose it is better than the alternative which sees deflationary pressure win the day but at the same time, I can't help but feel that this is the wrong way to go. I think that this is a trap that you can't get out of once you venture down the path. It requires more and more creative ways to do financing at the cost to everything else. When times perhaps turn around you probably won't know because the tools that you used to measure how the economy was performing don't work anymore. Negative yields are likely just around the corner. When they come precious metals are your safest haven. Cheers!
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