Sunday, August 14, 2022

We are Entering a Monetary Black Hole that will Meltdown the Global Economy

We are Entering a Monetary Black Hole that will Meltdown the Global Economy

Negative Rates The Monetary Black Hole that will Meltdown The Global Economy 4K We are in the midst of a strange economic experiment; Negative Interest Rates. Negative interest rates mean that there is no saving only consumption. The result is that we use up our planet, recklessly, at an ever-increasing rate. There is a NIL value placed on any resource. Immediate exploitation of everything pays. Lower interest rates will destroy savers, banks, and the economy in the medium to long term. And eventually, kill The US Dollar. Two percent annual inflation theft rate wasn't enough. Now they aim to skim an additional two percent via negative interest rates. Banker avarice knows no bounds. Negative rates. Just another way to scam American people. The crooks will be the only ones knowing what is going on. Negative Rates equals Credit Freeze; Monetary Contraction; Economic Collapse; Depression; Currency Reset. Elites Own it All. END THE FED NOW . Welcome to The Atlantis Report. President Donald Trump has suggested the Federal Reserve should bring interest rates below zero. Trump is a big fan of low-interest rates. In fact, he has called on the U.S. Federal Reserve to take rates into negative territory, just like Germany or Japan. In theory, the banks would pay you to borrow money. But savers would also have to pay a bank to keep their money there. But what does that even mean? Will you be paid for taking out a loan? In September of 2019. US President Donald Trump posted a strange tweet that started with the following sentence: The Federal Reserve should get our interest rates down to zero or less, and we should Then begin to refinance our debt. Trump even went so far as to praise Germany's zero percent. Then he went even further on Twitter, referring to the Fed as "boneheads." But what if Trump got what he wished for? What if interest rates were actually zero, or negative, like Sweden or Japan. What if instead of a bank paying you to hold your money, you theoretically had to pay the bank to keep it there. It could happen with negative interest rates. So what exactly are negative interest rates? Interest rates are generally thought of as the cost of borrowing money. Central banks raise interest rates to cool off an economy that's close to overheating. Zero or negative interest rates, on the other hand, are seen as a way to stimulate an economy. In theory, negative rates force banks to lend more. But it doesn't always work that way. Instead, negative rates can actually have the opposite effect. They can squeeze profits so much that financial institutions actually lend less. They can also have an impact on government funding. For example, Germany's economy is on the verge of a recession, so it lowered interest rates to -0.31 percent, which means investors could be charged for keeping their money in the bank. But the country still needs to fund the government. So in August 2019, Germany attempted to sell 2 billion euros worth of 30-year bonds, which would mature in 2050, and they had a negative yield. As a result. Investors only bought 869 million euros worth with a yield of -0.11 percent. In other words, investors will, in theory, pay to have the German government hold their money. Anybody who owns this bond throughout its full life is guaranteed to lose money, and they're guaranteed to lose money over a period of 30 years. Now, what this is telling us really is that anybody who thinks that this is a good investment that is factoring in an extremely bleak economic outlook. You're talking about no growth, no inflation for the next three decades. In the end, the German government was forced to buy the remaining bonds itself, which could push down interest rates even further. At the same time, the European Central Bank, or ECB, has continued on its own negative rate path. The ECB recently lowered its primary deposit rate to -0.5 percent, a ten basis point cut. It also reintroduced quantitative easing as a means to try to stimulate the economy. Negative yields and low-interest rates in Europe have also had another effect. They've driven investors to the U.S. The bond market in search of safer investments with a yield. Negative rates cause uncertainty in the markets. Many experts believe negative rates in Europe have only had a modest impact on Europe's growth. While it lowered the cost to borrow money, it didn't do anything to increase the demand for goods. As a result, businesses didn't invest. Lowering rates even further could put the entire global financial system at risk. Negative rates cause a decrease in margins, which decreases profitability for banks, and that can cause a bump in fees for loans, including home mortgages. They also make it more difficult for countries' institutional investors to find appropriate opportunities for clients. If markets shift, bondholders seeking gains in price rather than yield could get stuck holding too much risk. Germany's negative interest rates have dramatically pushed up prices. Recently, traders paid the equivalent of $195.87 for $100 and 20-year German bonds, which translates into a negative technical yield of 0.386 Percent. Former Fed chief Alan Greenspan has said that he doesn't believe negative interest rates in the US ; It would be that big of a deal. But others disagree, saying negative rates can be a trap, that they may not boost flagging economies and can even become the norm. And that hurts banks, savers and companies in the long run. It is the financial sector, the banks, the insurance companies, the pensions, the security settlement is all structured, invented on one assumption: positive interest rates. Limited reserves. Marginal reserves. Everything is on favorable interest rates. You take those away, and now the investment decision loses your money in a negative interest rate world. The banking system doesn't work. Pensions don't work. The European system works because we in the US, the reserve currency, are still positive. Banks like Deutsche Bank are restructuring their entire worldwide reserve system to invest in US Dollars; because they've got positive yields. If we go down that road and go negative yields with them and cut everybody off from positive. I think the financial system is at severe stress at that point. There's also a concern that negative rates encourage governments to borrow more without fear for growing debt until the rates go up, and the bill comes due. Meanwhile, trade wars have taken their toll on the global economy, and there's a growing concern because rates are so low now, the next recession could force the Fed's hand. Then negative rates could be the only alternative. Larry Summers, former Treasury secretary under President Bill Clinton, says that once rates go negative, it could be challenging to get out, and the global financial system could get stuck. The great concern is with what I've called the monetary black hole. Those zero rates appear to be where we're stuck in Europe and Japan. We're one recession away from a situation of that kind. It's a very different world when everyone's stuck at zero interest rates. We've got to think about the stabilization policy. Institutions are going to have to think about their investment policy in a very different world, in a very different way when we have a black hole, zero interest rate world. Negative rates provide little relief. Clearly, the negative rates have not really been helpful to spur the economy in some of these markets. And we'll have just to see how it plays out. But this negative rate dynamic continues to have investors searching for yield. And I think that's a trend that's going to continue because not only there are a lot of negative rates. If you look at this stack of debt products out there, there is not that much inventory that's yielding over 5 percent. So on the one hand, you have a lot of negative rates and on the other side, not a lot of places where you can find yield. Negative rates will eventually make their way to the United States. I think eventually it will come here to the United States. It may happen sooner rather than later. However, in the United States, beyond the Federal Reserve, the government would have to take a lot of steps in changing tax laws or regulatory laws, and particularly how to deal with cash hoarding to really have negative rates dip very far. So Trump may get his wish of zero or negative rates, but the economic slowdown that led to them would dampen the president's prospects of re-election. And the end result could be even worse for the U.S. Economy. If we go negative rates in the United States, it will virtually destroy the banking system as it is doing in Europe as we speak. That would be a major, major crisis. There'll be consequences, in the long term, for negative rates as an experiment. The joke is that financial institutes intentionally don't talk about how quantitative easing actually results in increasing the wealth gap. We're running on borrowed time . It's just a race to get as much money as possible before the depression that's guaranteed to happen. Baby boomers and other people close to retirement need stability, which means the place where their pension funds are invested in are the government bonds. If interest rates go, negative the government bond rate will follow negative resulting in pension funds having to dig into their principal balance to make good on required payouts or to invest heavily into higher-risk assets like stocks, which is not the place you want to be when a stable source of income is the goal. We're already seeing overvaluation of the stock market due to the inflow of baby boomer cash since government bonds could not yield good returns for about a decade. This all together results in a stock market environment driven by speculation rather than by valuation based on PE ratio or other profit-based analysis. Other countries, which have a government-funded pension, are protected from this inflow of pension fund cash into their respective stock markets since their pension funds are derived from tax revenue. #1. - Negative interest rates squeeze profit margins of banks, and as profitability falls, lending activities suffer. #2. - Negative interest rates create zombie corporations. #3. - Negative interest rates kill the incentives to invest in productivity. #4. - Negative interest rates also corrupt the role of time-preference. So, What negative rates do is seriously impair the profitability of the banking sector, foster the creation of “undead” companies, kill productivity growth, and deform financial relationships. #5- Negative interest rates take away the ground principle of capitalism, namely capital formation. Without capital formation trough positive rates, insurance companies, and pension funds have to invest in much riskier assets that are bound to blow up. Rob Kirby says that US dollar negative interest rates are impossible since the derivative market is all in dollars, and 80% are interest rate swaps. The fixed-rate payer receives Libor floating rate. If the floating rate is negative, the fixed-rate payer both pays a fixed rate, and if the floating rate goes negative, pays that as well. That contract will never be written once the floating rate is negative and that the banking market would disappear. My take is since these shenanigans are responsible for the bulk of US dollars fractionally expanded overseas, the trade would collapse as the medium of exchange would be in critically short supply and/or the dollar would cease as being the reserve currency. If the US moves it's interest rates down to match Europe; It trashes the dollar. No way in hell I'm paying a bank to hold my money. I will hoard cash and silver instead. Money for a few debts for everyone else. "There are no free men in a credit nation." Lower interest rates will destroy savers, banks, and the economy in the medium to long term. This was The Atlantis Report. Please Like. Share. And Subscribe. Thank You.

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