The fundamental premise underlying negative-interest rate bonds is that lenders pay government borrowers for the “privilege” of lending to government. Based on this premise, governments receive loans at less than the face value of the bond. For example, if you loaned $100,000 to the government on a negative-interest loan, you might only receive, say, $98,000 when you redeemed that bond. You’d lose $2,000 for the privilege of lending to the government.
In all of world history, I doubt that there’s ever before been a time when lenders paid borrowers for the privilege of lending money.
The world is embracing negative-interest rate bonds for the first time. That fact is not evidence of economic creativity and financial innovation so much as evidence of desperation and the financial madness that lies at the heart of debt-based monetary and economic systems.
A few facts about negative-yield bonds:
• According to Bank of America Merrill Lynch, the global amount of government bonds having negative yields is now $13 trillion,.
• Just two years ago, there were virtually zero negative-interest rate bonds. The subsequent, two-year rise to $13 trillion is unprecedented.
• In February A.D. 2015, the total amount of negative-interest debt was $3.6 trillion.
• By February A.D. 2016 that negative-interest debt had nearly doubled to $7 trillion.
• In the five months since February, A.D. 2016, the amount of negative-yielding bonds nearly doubled again to $13 trillion.
• The spread of negative-yielding bonds is unprecedented, fantastic and accelerating.