Currency Reset Confirmed🚨 Negative Rates Will Be ‘Fatal to the Global Banking System 2020 - financialanalysis


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Thursday, December 19, 2019

Currency Reset Confirmed🚨 Negative Rates Will Be ‘Fatal to the Global Banking System 2020

Negative Rates Will Be ‘Fatal to the Global Banking System’
DoubleLine Capital CEO and billionaire “Bond King” Jeffrey Gundlach said that negative interest rates will only end up causing major problems for the banking system over a long-term period, and he hopes the U.S. never tries to go negative.

“If the United States went negative with Japan and with Europe negative, I think it would be fatal to the global banking system because there’d be nowhere for capital to go.”
“It’s one of these things that (policymakers) view as a short-term solution, knowing that over the long-term it’s devastatingly bad,” Gundlach said in a recent hour-long interview with Yahoo Finance.Negative-yielding debt around the globe peaked at almost $18 trillion, though, that number has since fallen to about $11.5 trillion. Central banks have flooded their markets with cheap liquidity to help sustain growth and investors are basically paying governments to hold safe haven debt, which is unsustainable, according to most economists.

Of course, that hasn’t stopped U.S. President Donald Trump from calling for NIRP, negative interest rate policy, in the U.S.“We are actively competing with nations who openly cut interest rates so that now many are actually getting paid when they pay off their loan, known as negative interest,” Trump said in November. “Who ever heard of such a thing?”

“Give me some of that. Give me some of that money. I want some of that money.”

Federal Reserve Chair Jerome Powell has ruled out NIRP — at least for now — which in part led Gundlach to recently grade the Fed chief out as a C-minus for his work so far.

Gundlach said NIRP in other countries so far is similar to the massive U.S. national debt in that it hasn’t been a problem yet, but that it will be at some point. He also said “what they’re doing is trying to stimulate their economy through negative interest rates, and the banks and the insurance companies are really suffering underneath this policy.

Oaktree Capital CEO Howard Marks also spoke recently on negative rates, saying they are mysterious, difficult to understand and could turn the financial world upside down.

Having negative rates in Europe, Gundlach said, means banks and insurers have “massively underperformed for obvious reasons. If interest rates are negative, how can an insurance company that has annuities that pay a positive rate — how can they possibly achieve that return?” Gundlach wondered.

Ultimately, Gundlach said NIRP will be “fatal,” citing Deutsche Bank as an example. The bank’s stocks have fallen off, down more than 11% this year and down a whopping 75% over the past five years, in large part due to negative rates.

“When Germany was at negative-70 basis points, Deutsche Bank stock was down about $6 or something,” he said. “Whenever you get a big rise in interest rates in Europe, you get a relief rally in Deutsche Bank stock. So basically, negative interest rates are fatal over the long term to the banking system.”Gundlach added that “nobody really owns these negative-yielding bonds, and it’s a “weird circular financing scheme.”

“That’s one of the strange things about it. Ninety-seven percent of all the negative-yielding debt in the world is owned by central banks and the financial institutions that they regulate, that are then required, like banks, to own these sovereign bonds and the like,” he said. “So nobody really owns them.”

As for Powell’s indications that we won’t see NIRP in the U.S., Gundlach said he sure hopes we won’t.

“(I) strongly and loudly applaud his statement that he doesn’t think we should take interest rates negative in the United States,” Gundlach said. “Because if the United States went negative with Japan and with Europe negative, I think it would be fatal to the global banking system because there’d be nowhere for capital to go.”
Bonner: We are Broke as the Gov’t Adds $1.7T in Additional Spending..BALTIMORE — With all the madness around the impeachment, few people noticed:

On Monday, the feds announced a $1.4 trillion budget fix that will add about $1.7 trillion in additional spending over the next 10 years. The measure even includes an extra $25 million to “study gun violence.”(We could have easily saved them $24.99 million. All they needed was a bus ticket to Baltimore. If there’s anything about gun violence that the city doesn’t know by now, it’s not worth knowing.)

In other words, Congress may be mad-dog-divided on the impeachment, but it had no trouble cozying up to spend more money and go broke…Greasy Swamp Pools
From the beginning of this century to last week, federal debt has multiplied four times. It was less than $6 trillion in 1999. Now, it’s over $23 trillion. No nation… nowhere… no time… no how… has ever been able to spend more than it takes in forever.

But national bankruptcy is not just a matter of money. It’s much worse. That $17 billion in borrowed money (most of it miraculously conjured up out of nowhere by the Federal Reserve’s ultra-low rates and its quantitative easing programs) has turned America’s institutions into greasy swamp pools of degraded, disgusting degenerates.

Congress, for example, now presides in solemn deceit over an “impeachment.” But rather than the dignified legal proceeding that the Constitution called for, with members seriously weighing the evidence and pronouncing judgment, the whole thing has turned into just another partisan clown show.

But today, we come to the heart of the matter. We’ve been dodging it for a long time. It was too complex… too subtle… We didn’t have time to think it through… or to understand how the dots fit together.

Here’s the question: When the money goes bad, how come everything else goes bad, too?

Why Here, Why Now?
In extreme cases, it’s obvious. Hyperinflation, for example, destroys the economy; people become desperate.

In Venezuela, for example, there were only 50 kidnappings per year before Chávez took over. But now, with inflation at a million percent annually, robberies and kidnappings happen “all the time.” The government no longer even keeps track.

But why here? Why now?

Why would the FBI break the law and betray its own mission? (Tuesday’s headline in The Wall Street Journal: “Secretive Surveillance Court Rebukes FBI Over Handling of Wiretapping of Trump Aide.”)

Why would the Pentagon put its soldiers — not to mention the nation’s finances — in jeopardy to wage wars that make no sense? (Just read The Washington Post’s “Afghanistan Papers.”)

Why would the Democrats — except for Tulsi Gabbard — all turn into warmongers? (Headline in The American Conservative: “Defense Industry gives more to Bernie than any other 2020 candidate”…“How national security mandarins groomed Pete Buttigieg and managed his future.”)

Why would the press turn itself into a cheerleader for the Deep State, never seriously questioning the Deep State’s mindless wars abroad… nor its thoughtless deficits at home?

And why would the Republican Party abandon the small-government, balanced-budget principles that guided it (though often honored in breach) for 150 years?

(Unearned) Money Corrupts
Of course, the answers are many and slippery. But we know unearned money corrupts people individually.

The children of the rich, as well as the poor, are often ruined by it. Lottery winners often rue the day they won. Vast amounts of money corrupt young sports heroes and TV stars. Is it any surprise it corrupts whole societies, too?


Money is what marks the relationships between people. One is master; the other is servant. One is producer; one is consumer. One owes… one is owed.

Let us imagine that you spend a day making a stool, for which you are paid $50. That money rewards your effort… and measures the new wealth you created.

You can save that wealth… transfer it… or pass it along to future generations. You earned it. And it puts you $50 ahead of people who didn’t earn anything that day. And now, assuming the going rate is $50 per day, with that money you can “buy” a day’s worth of someone else’s labor.

The rate at which the human race is getting richer… the rate of technological innovation… the Fed’s interest rate policies — all are irrelevant. What counts is the $50 and its faithful rendering of who owes what to whom.

If nothing changes, you should be able to buy a stool for $50 years later.

If, on the other hand, technological progress cuts the time needed to make a stool in half, you should be able to buy two stools. And if productivity has doubled, a stoolmaker should be able to turn out twice as many — two — in one day. But the basic relationship between you and others is unchanged.

Cheated by the System
Here is where “time prices” — a theory developed by economists Gale Pooley and Marian Tupy — really come into play. You spent a day producing. You should now be able to buy a day of someone else’s time — which is now (after productivity doubles) equal to two stools.

George Gilder (who wrote one of the best books on money ever published, The Scandal of Money), Pooley, Tupy… et al… are right. Time is the ultimate yardstick. And while the feds can increase the supply of money, they can’t even add a second to the day.

So, if others owe you a day of labor now, they should owe you a day 20 years in the future.

But suppose the feds came along and gave everybody $50 (guaranteed income)? Or suppose they set the price of stools at $100 each (price-fixing)? Or suppose they charged you $1 a year to put your $50 in the bank (negative rates)? Or suppose they decreed that stools should increase in price at the rate of 2% per year (inflation targeting)?

Or suppose they “print” money and don’t make any stools? The money supply goes up… but output does not. Prices rise… so the $50 you earned becomes worth less and less.

If you had earned your $50 in 1971, for example, it would be worth only $1 today. Instead of giving you a good day’s work, which you earned fair and square by making the stool, you would get only 10 minutes.

Wouldn’t you feel cheated? And wouldn’t you feel that there was something wrong with “the system” that cheated you… that it allowed others to cut in line ahead of you…

…and that you had the right to cheat, too?

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