Negative Interest Rates: Economics Becomes the Satirical Science

I am no financial genius, Heaven knows, but one thing I have learned is that when I am looking at a piece of economic news, and I have to double check to make sure that it was not produced by The Onion or The Babylon Bee, that is never a good sign.

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  1. Approximately, $17 trillion in (not US) bonds charge negative nominal (Stated rated rate, less inflation) interest rates.

    A metaphor for central bankers is the Wizard of Oz feverishly pulling levers behind a green curtain.

    In the US, FDIC-insured banks have paid savers near-zero interest rates for almost ten years. Subtracting just 2% (low) inflation from the 0.1% banks pay results in negative nominal interest rates.

    The theory was super-low or negative rates would induce the serfs to spend and spur economic growth. It did not work.

    Fear is the reason for lending to a government, or anybody else, and paying the debtor “interest” or a fee. Specifically, it’s the fear of deflation and economic depression.

    Like the much-touted inverted (flat-sloped yield curves are problematic as well) yield curve, negative rates are associated with recession, depression, and deflation – the most feared eventuality among politicians and central bankers/planners.

    It’s taken decades of tireless interferences, interventions and manipulations by central bankers to cause negative nominal bond yields.

    Crippling debt and adverse demographics point to a deflationary future.

    The investor would be better served sewing the money in a mattress.

  2. As she said, price and yield have an inverse relationship.

    If you buy a bond at 90% of face value you are actually receiving a higher yield than is stated on the bond. If the price the bonds the bank is selling for is low enough the yield actually received is positive.

    Usually, when bonds are sold by the issuer at below face value is a sign of a serious problem.

    My father worked in the bond business: he said the prospectus may lie but the actual interest rate that is paid does not.

    There is more here than is being said.

  3. Negative interest rates are, of course, the work of the devil creating a nearly irresistible invitation for corporations to borrow for the purpose of buying back their own stock resulting in its instant inflation, increased profit on stock options and higher executive pay for “enhancing” shareholder value. The brilliance of this scheme is even more apparent when these corporations go bankrupt and are bailed out by the Central Bank and ll the downside is passed on to the uninvolved: the working taxpayer.

    The is one of basic reason for our own stock market elevation. The stock market is rising for the same reason the housing market did before it crashed. It only matter of time. Given this scenario a zero interest rate on your money isn’t so bad. At least you get to keep it. Call it insurance.

  4. A number of years ago a cosmologist wrote an article explaining why time travel into the past was highly unlikely to ever occur. Aside from the physics and the logic problems were a number of other issues. One was the likelihood of large crowds showing up to watch major historical events like the Crucifixion. Another was that time travelers who attempted to stay and put down roots to live the good life with their economic foreknowledge would tend to drive interest rates to zero or below. Hmmmmm….

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