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Category Archives: Interest Rates

The “DEBT-based” Monetary System is a “RISK-based” Monetary System


Debt = Risk [courtesy Google Images]

Debt = Risk
[courtesy Google Images]

FORBES magazine recently published an article entitled “The Fed’s Monetary Monkeying Is Ruining Your Retirement And The Economy”. As often happens, excerpts from that article got me thinking. For example:

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• “Is there any way that NIRP (“Negative Interest Rate Policy”) make sense?

“ Maybe.

Central banks think NIRP will get people to take more risk.”

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What’s the Fed mean when it encourages people to take more risk? Drive without fastening their seat belts? Cancel their home owner’s insurance policy?

No. The Fed’s encouragement to take more risk is like telling a man to play Russian Roulette. However, in the context of this analogy, each “bullet” is an item of significant debt.

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Monetary Madness Part II—Perpetual Bonds


The Cure of Economic Calamity: Looney Tune Economics [courtesy Google Images]

The Cure for Economic Calamity:
Looney Tune Economics
[courtesy Google Images]

As seen in the previous article, the total value of negative-interest rate bonds has jumped from nothing to $13 trillion in just two years.

Although governments issuing negative interest rates bonds don’t have to pay interest on those bonds, they still have to repay most of the principal.

What a bummer. Wouldn’t it be great if someone invented a government bond that not only didn’t have to pay interest (as with negative interest rate bonds) but also didn’t even have to repay the principal?

Well, folks, they appear to have done just that. They’re called “perpetual bonds”. They’re hot off the press, and the concept seems straight out of Looney Tunes.

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Last month, Gold-Eagle.com published an article entitled “Gold and the Perpetual Bonds Era”. The subject was “perpetual bonds”–a concept I’d heard of for the first time only about a week earlier.

Judging from what I’d already heard and the Gold-Eagle article, it’s apparent that “perpetual bonds” are—like “consumerism,” debt-based currency, sub-prime loans, fractional reserve banking, deficit financing, negative interest rates, market manipulation, and “helicopter money”—just another manifestation of the madness that’s inherent in the concept of fiat, debt-based currency—and of government’s desperation to do something, try anything, that might work to avoid or postpone a coming economic collapse.

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Monetary Madness Part I—Negative Interest Rates


Negative Interest Rates-- Heading for Hell? [courtesy Google Images]

Negative Interest Rates–
Taking us towards Hell?
[courtesy Google Images]

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.

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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.

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Interest Rate Manipulation Fails


Interest Rate Manipulation is Income Redistribution [courtesy Google Images]

Interest Rate Manipulation is Income Redistribution
[courtesy Google Images]

On February 9th, Business Insider Australia published “CARNAGE IN JAPAN:  Nikkei’s largest fall in years, yen spikes, government bond yields below 0%” which said in part:

 

“On Monday [February 8th], the benchmark Nikkei 225 index lost more than 900 points, closing the session at 16,085.44.  The 5.4% one-day decline was the largest since June 13, 2013 . . . .  Since January 29th, the day the Bank of Japan adopted a negative-interest-rate policy, the Nikkei index has lost more than 10%.”

Since mid-December, when the U.S. Federal Reserve increased the U.S. interest rate by 0.25%, the U.S. stock market has also suffered a significant decline.

Japan lowered its interest rates to zero—and then to a negative interest rate—their stock markets fell.

The U.S. raised interests from 0.25% to 0.50%, and the US stock markets fell.

The world’s stock market indices are falling. Judging by the US and Japanese recent experiences with raising—and lowering—interest rates, interest rate manipulation is insufficient to overcome whatever forces are causing the market declines.

This implies that neither the Bank of Japan nor the Federal Reserve has any viable tools–including interest rate manipulation–that can reliably stimulate the economy and withstand the forces of economic depression.

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The “Pop” Heard ‘Round the World


Will Somebody Please Turn Off the Bubble Machine? [courtesy Google Images]

Will Somebody Please Turn Off the Bubble Machine?
[courtesy Google Images]

I have no doubt that the cornerstone of the New World Order (N.W.O.) is a debt-based monetary system.  I have no doubt that, if today’s debt-based monetary system were to fail, The Powers That Be would work feverishly to install a second, debt-based monetary system.  If the today’s debt-based monetary system (built on fiat- and/or petro-dollars) failed, the N.W.O. would seek to impose a “new-and-improved” debt-based system that might be built on Special Drawing Rights (SDRs).  These SDRs are nothing more than new debt-instruments issued by the IMF rather than the old debt-instruments currently issued by the Federal Reserve and other central banks.

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The Fed Can Run, But It Can’t Hide


Heavyweight Champ Joe Louis "You Can Run, But You Can't Hide" [courtesy Google Images]

Heavyweight Champ Joe Louis
“You Can Run, But You Can’t Hide”
[courtesy Google Images]

Before declaring bankruptcy in 2008, Lehman Brothers was the fourth-largest investment bank in the US.  It’s bankruptcy nearly toppled the US and global economies and helped precipitate the “Great Recession”. 

When Lehman Brothers filed bankruptcy, its assets were only 3% greater than its liabilities.

Today, the Federal Reserve is the single largest central bank in the world.  It’s assets reportedly exceed its liabilities by only 1.3%—less than half of what Lehman Brother had when if filed for bankruptcy in A.D. 2008.  The Fed has much greater significance than Lehman Brothers and is operating with a much smaller “margin for error”. 

The Fed’s potential for causing trouble for the US and global economies is enormous.

 

SovereignMan.com recently published an article with the peculiar title of “The global financial system is now resting on a margin of 1.3%.”

The article explained that,

 

“In 2008, the Federal Reserve’s entire balance sheet was just $924 billion.  And the total of its reserves and capital amounted to $40 billion, roughly 4.3% of its total assets.  Today the Fed’s balance sheet has ballooned to $4.5 trillion, nearly 5x as large.  Yet its total capital has collapsed to just 1.3% of total assets.

“The Fed’s total capital corresponds to the Federal Reserve’s ‘net worth’.  The value of the Fed’s assets needs to exceed their liabilities.”

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Radio Script 150917


Live Radio Script [courtesy Google Images]

Live Radio Script
[courtesy Google Images]

I co-host the “Financial Survival” radio show each workday from 3 to 4PM (central time).  The program deals with stock and bond markets, but primarily focuses on physical gold and physical silver markets and the economic and political events that affect precious metals.

Each day I write a “script” that consists of several articles or topics that we might talk about during the program. 

Those articles are a slapped together quickly and might be a little “rough”.  Still, I think they sometimes contain enough of an unusual insight to make them worth reading.

Here are the articles for today’s script:

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Posted by on September 17, 2015 in Economy, Federal Reserve, Interest Rates

 

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