Negative Rates are The Euthanasia of the Economy

Pushing interest rates below zero is both an act of desperation and something that in theory should have a huge, immediate impact of the behavior of borrowers and savers. The fact that negative rates have become the new normal in big parts of the world but haven’t caused the expected behavior change should scare the hell out of everyone.said economist John Rubino the author of The Coming Collapse of the Dollar in an article recently . In Denmark, where households carry the highest debt to income ratio in the OECD, even mortgage rates have gone negative! It's hard for the Fed to justify reasonable interest rates when the other major central banks of the world are going into negative territory. Now there's talk of the Treasury issuing 50 and a 100 year bonds, to "take advantage" of the low interest rates, never mind the debt burden. We all know, thanks to that great economist Dick Cheney, that "debt doesn't matter." Modern Monetary Theory is now in vogue. The very long bonds are also supposed to provide fiscal stimulus, which we apparently don't have enough of, even with federal spending at record high levels. The next step after negative interest rates will be currency with an expiration date. That way, savers will not be able to put their money into safe deposit boxes. Currency will be recycled, with less and less value per monetary unit. Central banks will be easily able to meet any inflation goals. There seems to be two schools of thought about negative interest rates. Those that think they could go much lower into negative territory and those that believe once the Fed reaches zero that the game is up. I think we will first see both investor & retail depositor flight in Europe. Stagflation could be sparked as businesses stockpile and consumers start to hoard non perishables rather than suffer negative rates. We have seen a growing amount of central bank and government intervention in markets over the years bolstering the argument that true price discovery has been distorted. Today these forces including stock buybacks and what has become known as the "Plunge Protection Team," appear to jump in at any sign of a pullback. This destroys true price discovery and the proper pricing of assets which are the bedrock of free markets. In simple terms, the whole world is on a path that avoids real reform and bails out the very people that caused many of our problems. The good or bad news depending on how you look at it is this "great manipulation" will not work indefinitely, eventually, it will come crashing down around those in charge. We need to read the IMF paper , and this is what they are proposing : 1). To abolish all cash. 2) .To have zero rate for small depositors and negative for large. 3). A regular draw to abolish notes with a particular prefix number. 4). Discount cash notes as retail banks withdraw or deposit at the central bank window. Yes, insanity is taking over. There is nothing difficult about this. If money is so plentiful that paying people to take it is necessary and they don't take it then there are no investments available which will not lose money. That is the return on investment is negative. One should not invest at all. Just hold the "loan" to term and give the principal back to the lender pocketing the negative interest. Any investment will just lower the actual return on outright borrowing and possibly create an outright loss. The implication is that wherever one sees negative rates the local economy is contracting. Make negative rates general and see no boom implies that the economy is contracting, period. Investment returns at the margin are, themselves, negative. Negative rates are an indicator of economic failure and the greater the the negative interest that appears to be required the faster the failure. The economies of the West are increasingly on a declining growth path to oblivion. Cheap money is simply euthanasia. The likely effect of chronic negative rates is to reduce the pool of positive investment projects. In this case most all investment projects lose money so investment will fall reducing GDP. The other consequence of negative rates will be the bankrupting of companies that have piled on debt to boost stock price. The liability side of the balance sheet becomes ever larger as the current cost to retire debt soars with increasingly negative rates ,bond prices rise as rates fall.And the overall deflationary effect on the economy will squeeze profitability as savings capital no longer earns any interest and is eroded, by in effect a yearly confiscation. Negative interest rates are making money not just cheap, not just free, but actually profitable to borrow.​​​​​​ This is not something that does not make sense from a mathematical perspective. They are "paying" you to agree to pay them back money they printed out of thin air with your actual labor. Their original math for these kinds of things was a lie, and now it is in the process of being exposed. The problem is very simple .Only banks get those rates. Actual people always pay positive. Big difference . Since it is against the law for the FED to give money directly to failing banks, they circumvent by lending them money with negative rates which they deposit back to the FED pocketing the interest delta . Negative interest rates is simply another indicator that the global economy will never heal and is on its way towards the cliff. This was The Atlantis Report .








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