03/04/2016 - Negative Interest Rates Are Leading To The End Of Capitalism
John Rubino highlights the recent developments in Japan with increasing negative interest rates there, with Japan’s government debt now requiring the lenders to pay rather than receive interest rates for 10 years .. “The world’s central banks are creating so much excess cash that there seems to be nowhere else for it to go. The longer, but way more interesting and scary explanation is that capitalism as it used to function is over, and the result will be catastrophic.” .. there has been so much quantitative easing going such that now Japan’s central bank is directly funding its government, something once widely understood to be the last gasp of a dying regime but now seen as just part of the new normal .. Pension funds, meanwhile, operate the same way, taking in and investing contributions against future obligations. Many U.S. pension plans are already borderline broke and in a NIRP environment they’ll suffer a mass extinction. Again, big industry, many employees, huge potential impact on both Wall Street and Main Street. The slowing growth that results from negative interest rates is thus profoundly deflationary, which presents another explanation for investors’ willingness to park cash in places that cost rather than generate income: They expect the currency they get back to be worth more than the currency they put in. This is exactly the opposite of what rate-cutting central banks are hoping for — which might in the end be the moral of this tale: Economic laws are like their natural counterparts. You mess with them at your peril.”
