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There's a multitrillion-dollar black hole growing at the heart of the world's financial markets. Negative-yielding debt -- bonds worth less, not more, if held to maturity -- is spreading to more corners of the bond universe, destroying potential returns for investors and turning the system as we know it on its head. Now that it looks like sub-zero bonds are here to stay, there's even more hand-wringing about the effects for mom-and-pop savers, pensioners, investors, buyout firms and governments.
[...] Negative-yielding debt topped $13 trillion in June, having doubled since December, and now makes up around 25% of global debt. In Germany, 85% of the government bond market is under water. That means investors effectively pay the German government 0.2% for the privilege of buying its benchmark bonds; the government keeps 2 euros for every 1,000 euros borrowed over a period of 10 years. The U.S. is one of the few outliers, with none of its $16 trillion debt pile yielding less than zero, but across the world, strategists are warning that the problem may get worse.
(Score: 0) by Anonymous Coward on Sunday July 14 2019, @04:02AM (3 children)
It's called "deflation." The market expects things will go from bad to worse.
(Score: 0) by Anonymous Coward on Sunday July 14 2019, @04:17AM
As soon as the stock markets come to their senses and correct to something a little closer to actual value, bonds will be in demand again.
(Score: 1, Insightful) by Anonymous Coward on Sunday July 14 2019, @04:41AM (1 child)
Call it whatever you like, it's something that the world hasn't see yet at this scale.
(Score: 0) by Anonymous Coward on Monday July 15 2019, @05:01AM
We've seen it before - the Japanese savers holding onto national debt starting from the90s. Two so-called "lost decades" of Japanese economy,
(Score: 2, Troll) by jmorris on Sunday July 14 2019, @04:18AM (7 children)
They have to move all money to electronic storage to make this insanity even wobble along for a few more years. Pallets of cash "earn" more than bonds, even after accounting for the security and insurance. So it has to go, because we must have a fully debt based money. Why? Who said so? Don't ask, just obey.
(Score: 4, Funny) by krishnoid on Sunday July 14 2019, @05:12AM
Or let it trickle down in more productive ways [dilbert.com].
(Score: 5, Interesting) by ilPapa on Sunday July 14 2019, @05:38AM (4 children)
No, that's not how it works. Those bond rates are so low because of the efforts of all central banks (including Donald Trump's captive Fed) to lower interest rates, forcing money from banks and the bond market into riskier assets (stocks) so that it looks like the economy is just humming along when we've actually been in a recession since 2017. When the world has figured out that the employment numbers are bogus (because the number of people not looking for work don't get counted and that number has been growing steadily since 2017), and the degenerate president in the White House likes to think the Dow Jones average is the report card for his performance in office, then the only thing left to do is hope for increasingly bad economic indicators and hope that the Fed keeps cutting rates and the Dow keeps rising. It all works until it doesn't and then there's nowhere else to go.
It's all misdirection, and your pallet of cash is steadily losing value at approximately the same rate as those negative-return bonds. Real inflation is running 8-10%. I wish I was making this up.
http://www.shadowstats.com/alternate_data/inflation-charts [shadowstats.com]
You are still welcome on my lawn.
(Score: 0) by Anonymous Coward on Sunday July 14 2019, @06:12AM
I hardly ever share your opinion, but I think you are right on the money here.
The whole process is designed to boost money flow into the stock market (at least since St Obama's time). An earlier poster wondered why Netflix seemed to have an unlimited credit line to lose money, this is it.
(Score: 1, Troll) by jmorris on Sunday July 14 2019, @06:43AM
No argument that cash depreciates at the inflation rate, that being the definition of inflation. But that is less than the return of negative interest, which was my point. That pallets of cash in a vault outperform bonds, and that ain't sustainable.
Everybody knows the problem with deflation is that it creates that 'knee' in the charts as the rate of return slides below zero and simply holding cash becomes a better move. It causes savings and investment to distort and then just dry up, leading to an economic crash. Our super geniuses think that if they do what no previous civilization facing this problem could, just eliminate the cash option, that the math will continue to just work and allow negative inflation rates to work exactly the same as positive rates.
Not sure what is up with the employment numbers. By the book everything is great. It isn't just unemployment that is down, which is where you think the trickery is. Look at the total employment number as well, it too is a record. But does it FEEL like record employment is out there in the real world? If everybody has jobs, why is the government still going broke sustaining the same massive welfare state? Why is everyone feeling a disturbance in the force? Something ain't right. After Obama's gang got through it is doubtful ANY economic measure the government publishes is worth the pixels they print it on now.
As for stocks, they crash in a couple of months. Take that to the bank. Actually that that to your broker and SELL ALL THE THINGS! The only way the 2020 elections are even interesting is if there is a recession, so there will be a recession. Progs easily control enough levers of the system to trigger one on demand. They tend to last 12-18 months and it needs to still be going in the Fall of '20 when voters get set into a choice. Do the math. When it crashes buy everything back while it is "on sale."
(Score: 2) by JoeMerchant on Sunday July 14 2019, @02:53PM (1 child)
My favorite tidbit was the depreciation twist they put in the tax code after the Trumpinator took office. Want to buy a bauble, like a sailboat "investment" somewhere tropical. Well, now, you can fully depreciate your investment in the first year, no more waiting for depreciation to approximate market values - take your tax holiday right here right NOW and make our leader look GREAT on talk radio.
Nevermind how we're going to keep this farce going, we're all gonna die soon anyway, let's have a party before the shit really hits the fan.
🌻🌻 [google.com]
(Score: 0) by Anonymous Coward on Sunday July 14 2019, @03:39PM
What are you rambling about? This is a discussion of monetary policy, not fiscal policy (which is relatively unimportant and mostly a distraction).
(Score: 2) by inertnet on Sunday July 14 2019, @12:26PM
Right, it's simply to make it much easier to steal your money (and it's gone [youtube.com]).
Artificial inflation to steal 2% a year apparently isn't fast enough.
(Score: 3, Insightful) by Anonymous Coward on Sunday July 14 2019, @04:21AM (1 child)
But.. it's Bloomberg. The company that makes up tech stories all the time for clicks.
EG, the whole supermicro story.
Stories from bloomberg should be ignored, really.
(Score: 5, Interesting) by Anonymous Coward on Sunday July 14 2019, @12:00PM
So I get modded 'disagree'. How odd.
Bloomberg makes up all these crazy, wild accusations about China and Supermicro. Everyone involved, Apple, Amazon, says these accusations are 100% FALSE, *including* US Government departments, even at a time when the US is going crazy over "China spies!".
Bloomberg doubles down, has no proof, no sources, no anything, and still says it's all true.
Independent audits commence. Corps to "just dudes" search Supermicro motherboards for any hint. No one, anywhere, ever, finds anything.
But then everyone's like "Hey! Bloomberg is 100% legit!".
Then Bloomberg throws a story about Huawei having back doors in Vodafone's equipment. Except it's just telnet, it's not internet facing, and every piece of telecom equipment tends to have telnet for internal LAN use.
That's not a backdoor, although it may be configured wrongly as a default (eg, ON).. although this stuff was from 2012! Does Bloomberg retract, and stop claiming it's a back door put there to hack?
NO!
But then everyone's like "Hey! Bloomberg is 100% legit!"
And my post is modded 'disagree!".
Trusting Bloomberg for reporting is madness. They don't get tech, it seems.
(Score: 0) by Anonymous Coward on Sunday July 14 2019, @05:16AM
The Empire will be destroyed by gold. Money is just an illusion for workforce and will be irrelevant in this event.
(Score: 2) by krishnoid on Sunday July 14 2019, @05:28AM (1 child)
If investing in a sure thing is bad, wouldn't it encourage the little people to actually spend that money, or give it to people who will? Rather than park it in an investment bank where it gets aggregated into a financial market and just moves around rather than actually being put to work doing things?
(Score: 2, Informative) by Anonymous Coward on Sunday July 14 2019, @06:19AM
It is a very bad sign. Most everyday people don't invest in bonds of this type on a large scale. Basically, these are mostly for the class of large accounts that cannot have a standard savings account or hide money under mattresses; they have to invest in something. At the same time, bond rates are adjusted according to supply and demand. Together, this shows that there is a huge chunk of professional and big-money investors that would rather take the 100% guaranteed loss of these bonds over the risk of alternative investments (REITs, real estate, stocks, private equity, commodities, futures, etc.).
(Score: 3, Insightful) by edinlinux on Sunday July 14 2019, @06:14AM (4 children)
This is why govts and the big corps and banks are pushing so hard to get rid of cash... as soon as cash is gone, then interest rates can be negative as easily as they are positive... (they will just take it out of your account / smart-cash-card, each month..). They can't do that with real cash which can be stashed in safes / mattresses.. which is why cash has to go...
(Score: 4, Insightful) by Farkus888 on Sunday July 14 2019, @07:17AM (2 children)
People are told capitalism rewards hard work in school. The truth is right in the name, it rewards existing capital. That means that the most wealthy, those with the most capital, have the most power. They will never allow negative interest to be a universal thing. Since interest is a percentage it would hurt them far more than the poor. Bonds are for the middle class nearing retirement to stabilize their investments and make them predictable. By making the interest rate on them negative they push more of those people back into the stock market. That drives up the stock prices of the companies the truly rich own increasing their wealth at a higher rate than if they money had stayed parked. Greater disparity between gains of bonds vs stocks will create a feedback loop. Probably already started if they've let the illusion slip by letting bonds go negative.
(Score: 1, Interesting) by Anonymous Coward on Sunday July 14 2019, @03:50PM (1 child)
This is why it so easy to make money in finance. You fundamentally misunderstand how the economy works, probably by design so you are easier to scam. Our economy is not capitalist at all...
Lets look at a snapshot of Reuters market/finance news again (I also did this like a week ago):
https://i.ibb.co/NF2tVdf/finance2.png [i.ibb.co]
What are the topics?
- Us gov budget deal
- China gov drafts plan
- Effect of Tariffs on freight companies
- South Korea trade ministry
- BNP Paribas and US private prison industry
- Trump setting uranium quotas
- Top Puerto Rico gov officials resign
Notice that they are all about government activities? The only one even close to not is the private prison industry, but obviously those prisons are populated by the government.
(Score: 2) by Farkus888 on Tuesday July 16 2019, @08:11PM
You are strawmanning the school definition of capitalism. Again, I'm saying capitalism just isn't that, that thing doesn't exist so it doesn't have a name. It is core to my position that one of the rewards for having capital in capitalism is writing your own rules to make your capital grow faster. How else would they affect interest rates both inside and outside the bond market like I'm alleging they do? I think we believe in the same reality. You think they lie about us having capitalism and it doesn't exist. I think that if you look at the root word capitalism is exactly what we have and they lied about the definition.
(Score: 2, Interesting) by Anonymous Coward on Sunday July 14 2019, @12:41PM
Heh, no. You're applying too much intelligence to the whole thing. Really.
It's just about monitoring, not control. Control comes "outside" of the banks. It's the very reason the US government has a record of every single credit card transaction made, the same reason they have those same records for foreigners buying things through US firms/processing centres.
Control. Who you know. What you buy. When you buy it. What you buy it with. If you are forced into an all virtual cash situation, then they can track EVERYTHING. You owe Bob $10 for lunch last week. They now know you gave Bob $10, you know Bob in some capacity. Does Bob know a terrorist? Maybe you're a terrorist too? Or maybe you're just one of those protestors, like Bob's friends are!
It's why police want more license plate recognition, it's why they want cameras everywhere, it's why China developed gait recognition. It's all about mapping who you interact with, where you go, and by doing so, being able to determine if you're a threat to this year's plans. And if so? Legitimate methods can then be employed to harm/destroy/segregate/isolate/whatever that threat.
On the surface, this actually isn't a bad idea. If you could legitimately determine who is going to blow up a public space, who is going to do "bad things", that'd be great. But the real issue is misuse. At every level of government, the threat of misuse is massive. Individuals going "off the map", and doing whatever they prefer. And it doesn't end there, for foreign powers hack into governmental systems ALL THE TIME, and therefore can use that same data to target/hurt/harm members of your society that are GOOD!
Most primarily, monkeying with the election process is key. If (for example) China or Russia decide that you're the sort of candidate that will put 100% "my country first", and that this includes "hurting them a bit", then maybe you'll be out of the running BEFORE the primaries even happen! There are a multitude of ways for this to occur, all without violence.
But anyhow. Misuse. That's the real problem of all of this, and of a cashless society.
Not some weird "they'll take our cash!" idea.
(Score: 3, Interesting) by hwertz on Sunday July 14 2019, @06:33AM (13 children)
I honestly don't see what the problem is with deflation. I took intro to micro and macroeconomics when I was in college.. in 1999, so an interesting mix of "traditional" economic theory and denial over the dot-com bubble.. the econ book I had even featured a chapter praising the behavior of Enron as "multiply leveraging your assets" (apparently published just before it collapsed...), which the econ prof awkardly requested we just skip over.
I also found an awful lot of these economic theories that are basically taken as gospel, there's really not some rigorously applied scientific reasoning applied to quite a few of them... an AWFUL lot of these rules were "when A, B, and C occur, these stats will follow pattern D". OK, prove it... "Well, A, B, and C led to D these times... these times when it didn't are just exceptions to the rule."
Why the current view that constant inflation is necessary? Because at some points historically, some rate of inflation occured at the same time as growth, and the times when it didn't are exceptions to the rule.
Deflation is a dirty word, but think about this.. with the current complaint about wage stagnation, needing a higher minimum wage, etc... well, deflation would lower prices, so with the same wage these people would have more purchasing power. These very insurance companies from the article that need to have higher bond rates to meet future obligations, deflation (or at least keeping inflation very low) would reduce the cost of their future obligations. People whos banks accounts pay 0% interest (why would anyone keep their money in an account that costs them fees AND pays no interest?) would still be getting 0% interest but would have increased spending power over time via some deflation instead. Companies that want to invest would have that money go farther.
Clearly there are limits to this, you couldn't just keep deflating a currency indefinitely. The current attempts to spur investment, etc. etc. do not seem to be working, though, so... it really seems like questioning the current assumptions between interest rates, inflation, investment, and economic health and looking from scratch would be worth pursuing.
(Score: 5, Interesting) by edinlinux on Sunday July 14 2019, @06:42AM (2 children)
Its bad, because wages do not stay the same during deflation. What happens is people get laid off (more so when in weak deflationary economies like this), then cannot find another job at the same wage, so have to settle for something lower.
Their debts (i.e. mortgage) however, did not go down. So it means that the real rates of interest are higher than notional (so a 4% mortgage is really 6%, if year to year deflation is 2%, and each time you get laid off you make that much less at your new job.
(Score: 0) by Anonymous Coward on Sunday July 14 2019, @03:59PM (1 child)
makes sense.
if there's deflation, don't borrow money =profit.
if there's inflation, borrow money =profit.
also, deflation is a bit of a unicorn, e.g. doesn't really exist in the real world.
it sounds "bad" but if you get less wages and stuff becomes cheaper at the same time the absolute result would be paradise: you get no money for your labour but everythings free, lol.
inflation on the other hand can continue until infinity: you earn one gazillion dollar per hour but a loaf of bread costs half a gazillion dollars...
mind you, i am just a armchair economist, if even. i think any sane person would just try and find a "eigen value" of money, a number that reflects your real wage and cost of living independant of de- and inflation.
but i guess this "real number" is a big secrit and cannot be revealed to the public in general?
also negative bonds? srsly? that's like the clubermint admitting they're NOT doing anything productive with the money they're borrowing from you? woooaaahhh! that's like shooting a demonstrator and the demonstrator begs for more?
(Score: 2) by hendrikboom on Monday July 15 2019, @01:06PM
Clearly you need to use a logarithmic scale.
(Score: 3, Interesting) by anotherblackhat on Sunday July 14 2019, @09:09AM (1 child)
It might not matter to the economy in general, but deflation is a huge problem for the currency that is deflating.
Inflation promotes circulation. Deflation promotes accumulation.
The standard joke is, the Fed can always print money and drop it from helicopters, but they seriously do have a the ability to effect inflation on a massive scale.
(Score: 0) by Anonymous Coward on Monday July 15 2019, @03:00AM
Except that money printed by the Fed is owned by the private bankers who own the Fed. That just accumulates more capital in fewer hands.
Now if the government owned the Fed they could just print money and spend until they had the desired inflation rate.
Nationalize The Fed!!
(Score: 0) by Anonymous Coward on Sunday July 14 2019, @01:54PM
There's nothing wrong with short periods of deflation, the problem comes when deflationary expectations set in and people expect that their money will be worth more tomorrow than it is today. It tends to cause markets to grind to a halt. Likewise, having perpetual inflation isn't great either as it discourages people from saving as the money they have now won't hold it's value very well.
We've got incompetent people running the federal reserve that believe that having perpetual inflation is a good idea. The problem is that unless you've got enough wealth to invest it in things which are inflation protected, it means you're perpetually losing what little savings you have while the rich get richer.
A healthy economy should be fluctuating between a slight bit of inflation and a slight bit of deflation based upon what's going on. It's not really until either one gets out of hand that you have trouble.
(Score: 2, Insightful) by Anonymous Coward on Sunday July 14 2019, @01:58PM (3 children)
When was the last time you saw the price of something go down?
Certainly not at the supermarket, gas pump, or house market.
(Score: 1, Insightful) by Anonymous Coward on Sunday July 14 2019, @02:19PM
at the supermarket this week berries came into season and were about 2/3 of last week's price, and 1/4 to 1/2 of two months ago.
at the gas pump, it has at least one local minimum weekly
in the housing market, you want the big Chicago-style stuff with places going for 1m one year and 150k the next? Or will smaller deflations at the city level, lasting 2-3 years, suffice? Lots in North America. Local to me, detached homes dropped about 10% year over year, this year, and about 4% the year before.
(Score: 0) by Anonymous Coward on Sunday July 14 2019, @04:37PM (1 child)
Wrong.
Food today is half the price it was in 1960, adjusted for inflation.
Computers -- when was the last time anyone paid $3000 for a Windows 3 machine on an Intel 386 with 1 MB ram and 40 MB HD? (I did, in 1992)
Remember a couple of years ago when gas was $4/gallon?
Housing... ok, you got me there. But the energy and water are both cheaper than they were 30, 40 and 50 years ago in real, inflation adjusted dollars. My $200K home is the same size as my dad's $40K home was in 1968. Adjusted for inflation, my house is still more expensive, but boy, the amenities are spectacular.
Keynes was right. Automation and specialization has made everything cheaper. We don't have to work so hard anymore. We could all survive just fine working 2 or 3 days a week. The only problem is we'd have to live a 1930's lifestyle. No AC, tiny house, eat the same home-cooked meals every day, have maybe three suits of clothes...
(Score: 0) by Anonymous Coward on Sunday July 14 2019, @05:28PM
Sounds great, I vote for the 30's lifestyle. I really do not feel the need to keep up with the Joneses.
(Score: 2, Interesting) by Anonymous Coward on Sunday July 14 2019, @03:25PM
Deflation in and of itself isn't bad, except to people with some of the currently popular economic theories like neo-Keynsians and MMTers.
In truth, deflation in and of itself isn't a problem. It's happened a lot throughout history, albeit mostly before everyone switched to fiat money. Deflation caused by things like, say, improved logistics reducing costs allowing for lower prices? That's good stuff, except to the always-inflationists. It benefits everyone who needs to buy stuff (ie. everyone), and the only people it can really hurt are the people who only make money off of lending, especially if fractional-reserve is involved (sad, considering how much of the Great Depression's problem was buying on margin, that we seem incapable of learning from history). Creditors don't like this shit, and as we saw in the bailouts last decade, guess who runs the government?
The deflation this kind of negative-return bonds indicates is another story, though. That's being caused by manipulating the money supply. This is the bad stuff we need to worry about, because the only people it benefits are the people who get the new money first. Namely governments and the financial sector. Everyone else loses in this situation, but it's about the only way the governments can keep going with their deficit spending (interest on debt is a killer in modern government budgets). So it's going to happen anyway, because guess who prints the money?
(Score: 2, Informative) by Anonymous Coward on Sunday July 14 2019, @04:30PM (1 child)
Deflation:
I own a manufacturing business that has to work all summer to produce enough toys to meet demand at Christmas.
In order to have enough raw materials, I have to stock-up a year in advance. The supply chain isn't quick for some things.
I have to pay my employees in today's dollars, not tomorrow's deflated dollars-- the ones customers expect to purchase those toys with.
Deflation makes manufacturing, farming, and anything else that relies on future price stability next to impossible.
(Score: 0) by Anonymous Coward on Sunday July 14 2019, @09:57PM
> Deflation makes manufacturing, farming, and anything else that relies on future price stability next to impossible.
I think you need to look into the futures market--not to gamble, but to purchase your materials at stable prices. For example, the airlines purchase jet fuel far into the future, perhaps more than a year in advance, so they can control their costs.
(Score: 3, Interesting) by Rupert Pupnick on Monday July 15 2019, @01:14PM
Doesn’t it? Print more money. Send everyone in the country a check from the US Treasury for $100. Repeat quarterly as necessary.
Wouldn’t this create an offset to the deflationary pressure people are so concerned about?
If this is true, then there are at least three reasons why it hasn’t been done:
1) It doesn’t work
2) What’s happening in the bond markets is not really a problem
3) It’s part of some nefarious scheme to get more control over the population
Any other possible explanations?