Almost every day (ADG) declared on December 14 that a “new benchmark in financial repression” had been set: “a record $ 18.4 trillion in global debt is valued at a return below zero, compared to less than $ 8 trillion. dollars in March and a five-year average of $ 10.3 trillion. “
ADG consulted with interest rate historians Sidney Homer and Richard Sylla, who were of the opinion that “negative nominal yield debt had never been seen in material size in the 4,000 year history of interest rates. interest before the current cycle. ”
Economist Ludwig von Mises never imagined such a thing, writing Human action,
There can be no question of abolishing interest by any institution, law or device of banking manipulation. Anyone who wants to “abolish” interest will have to encourage people to value an apple available in a hundred years no less than an apple today. What can be abolished by laws and decrees is simply the right of the capitalist to receive interest. But such decrees would result in the consumption of capital and very soon would plunge humanity back into the original state of natural poverty.
We cannot be sure what Mises meant by “very soon”. But, to read ADG, the march towards “the original state of poverty” will continue. ADG quote Financial Times‘s John Dizard, who believes (paraphrased by Grant’s) that “The potential catalyst [is]: A bunch of treasury bills [that] expected to mature in the first half of next year with no corresponding new issuance due to the Treasury Department’s ‘historically high’ $ 1.5 trillion cash cache at the Fed, which could exacerbate an imbalance between supply and demand. “
Dizard is not alone. Mark Cabana of Bank of America says, “There’s going to be a train wreck in the front of the [Treasury] curve next year. There is too much money for too little paper. “
Credit Suisse strategist Zoltan Pozsar said: “A banknote shortage would radiate the curve, through two and three years, to the belly.”
In Europe, where negative nominal rates have been the norm since 2014 and currently sit below 50 basis points, European Central Bank President Christine Lagarde said further easing remained “part of our box. tools ”.
One person who sees it differently is CFO Mike Wilson, who told Kiril Sokoloff about Real vision, that inflation has started to make a comeback which will soon be reflected in interest rates. Wilson said,
So I think the seeds have been sown for many, many years. They were sown for political reasons. They were sown for reasons of inequalities which are only piling up now. This battle with China – between the United States and China – is obviously inflationary. It is a movement of deglobalization. So all of these trends that have pushed inflation down a little for 30 years are starting to reverse.
The biggest, as you mentioned earlier, which is important, is the amount of debt. I think it’s the one that people can’t get over. They say, well, the debt is so high we can’t let the interest rates go up. But if you have inflation, who cares? If you have inflation, interest rates can go up. If you get 3%, 4%, 5% inflation later, why couldn’t the interest rates be 2%, 3%, 4%, as long as your real rates are negative – you can finance your deficit in perpetuity, in several ways. So I think it’s just – as you say – that the snowball starts to move. And you end up getting more than you bargained for. So that’s how I see it.
Sokoloff responded with a metaphor for crossing America: “And you come to the Continental Divide, and you never know when you passed it. It seems to me that we have crossed the continental divide between disinflation and inflation. “
Wilson believes the US banking system is sick, silencing the speed of money and therefore monetary policy. According to him, fiscal policy will stimulate inflation and interest rates. “If you really want to get inflation, you want a steep curve,” Wilson said. “You want the banks to lend. You want growth in the money supply. This is how you get inflation. And we haven’t been able to generate that for 10 or 15 years for a lot of reasons. But why stop it now? Why would they squeeze back-end returns and ruin their banking system if their goal is to get inflation? “
Murray Rothbard wrote: “The interest rate is the price of ‘time’.” It’s safe to say that the world’s central banks have manipulated and misjudged what time is worth. Instead of Powell and Lagarde fixing this price, Rothbard should be understood, “The best rate of interest is the free market, or the ‘natural’ rate of interest, set by the functioning of free man according to natural law. , that is, the rate of supply and demand of monetary loans at any time. “
If interest rates are not set by the free market, there is no freedom.
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