Negative Interest Rates. Debt is Better than Cash? …Who’s Running the Monetary Asylum Anyway?
Global Research, April 23, 2015
Url of this article:
http://www.globalresearch.ca/negative-interest-rates-debt-is-better-than-cash-whos-running-the-monetary-asylum-anyway/5444901
http://www.globalresearch.ca/negative-interest-rates-debt-is-better-than-cash-whos-running-the-monetary-asylum-anyway/5444901
Two days ago Reuters reported
the 3 month “Euribor” went into negative interest rate territory. In
this missive I will try to make sense of this as to “why or how” this
could happen. I do not believe there is an answer other than the madness
and insanity of being locked in a “short squeeze” room with the exits
being blocked.
Over the
last three years we have seen gold trade many times in backwardation,
James Turk has reported this again is occurring in London. The only
explanations for this is that market participants either need gold now
for whatever reason and will pay a premium to get it …or, they fear not
receiving gold contracted for in the future. The bottom line is this,
for backwardation to occur, the “current” gold must be in short supply
for some reason. I believe this is what we are seeing in Europe,
“collateral” is in shortage and a short squeeze has pushed pricing into a
Twilight Zone without logic.
After gold backwardation came the next head scratcher which began
last year where various bonds, bank accounts and even mortgages being
written with negative interest rates. How do any of these make sense?
You “pay” the sovereign or even corporate borrower to lend money to
them? Or a bank pays you to borrow money on a house or property? Think
about the incentives here. Wouldn’t it be better to just take your
money out of a bank or broker to avoid the negative interest and just
bury it in a hole somewhere? How about banks lending at negative
interest rates for a home, wouldn’t the bank be better off NOT making
the loan and instead just sitting on the reserves? Here is David Stockman’s current take.
A
similar situation to this happened years ago in Switzerland (and again
currently) where interest rates went negative as people wanted assurance
“of” principal rather than “on” principal. The fear of currency
devaluation was so great, capital piled into the “hard currency”
francs. This is NOT what is happening today in Europe, no one is
accepting negative yield just to own the euro “for safety” as it has
already crashed versus the dollar and more so versus gold. What I
believe has happened is the system has fewer and fewer doors where the
exists are being blocked and collateral withdrawn.
It is
only a matter of time before we see depositors burying actual currency
notes, they are also converting into precious metals but the paper
exchange subsidy still holds, for now? Not only is the ECB withdrawing
collateral via “QE”, individual depositors are purchasing German
sovereign debt and withdrawing it from the market. Take the Greeks for
example, they fear their own banks and know they are not safe, they fear
depositing in German or other banks because their deposits may be
frozen or worse, confiscated. So what is their option for “safety” in
this paper room? Direct purchases of sovereign debt!
Now,
“interbank” lending has gone into negative interest rates which is
beyond lunacy. Banks which are theoretically run by “smart” people are
paying to lend and of course willfully being paid to borrow. The only
explanation I can come up with is that collateral has become so scarce
that a short squeeze has resulted. Any institution that needs
collateral is forced to pay the market rate which now includes locking
in a guaranteed loss. Business in Europe has become so poor, no one
can, much less wants to borrow anything. “Debt saturation” is where we
came from in 2007-08 and further down the rabbit hole to where we are
now, inverted interest rates on ALL levels …now even between “pros”?
I view
what is now happening as “eating into the bone”. Debt has become so
highly priced, locking in guaranteed losses is now seen as “wisdom”.
When viewed in history, the current mania will not be seen as a tribe or
nation gone mad, it will be seen as the entire human population losing
sight of their senses and allowing the lunatics to run the insane
asylum. I have no idea what the event will be to wake up the world but
the event is out there and its realization will be akin to awakening
from a nightmare in a cold sweat.
“Debt is
better than money” is becoming the current belief in the world. In
fact, with negative interest rates it can be said the world now values
debt greater than money. This cannot be so because of the simple fact
that actual paper notes can be held out of the system and not
“discounted”. How can owning debt today which promises less currency in
the future be worth more than more currency today? The fear of loss is
so great that currency itself is being discounted versus debt. If you
think this through, it says “everything is worth nothing” because the
currency itself is bad and losing confidence. Maybe this is why we are
seeing a push from all around the world to go “cashless” and fully
digitize? This would be closing and locking the only remaining door
other than making precious metals illegal. The only way for this to be
“normal” is if the lunatics are running the asylum …they surely are!
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