Negative Rates

27 Nov

Negative Rates

There are a lot of reasons for this new gold bull market.   

One of the most important reasons is a new worldwide phenomenal:  negative interest rates.

History doesn’t record the successes of any financial regimes or monetary systems based on negative interest rates.  Ever.  That’s because there aren’t any.

Negative interest rates are so utterly foreign to any kind of normal human economic behavior that they can only be the creation of delusional central bankers.  

Or madmen.  But pardon me for repeating myself.

In a negative interest rate regime, you lend your hard-earned money, for example by depositing it in a bank or buying a bond.  And then, when you withdraw your deposit or cash in your bond, you get back less than you loaned.  You pay the borrower for the privilege of using your money.  A cartoon character like Wimpy might say, “I will gladly pay you $900 tomorrow for $1,000 today.”

Make sense?  Of course not!  But there is now a total of about $17 trillion in negative-yielding debt – both government and corporate bonds – around the world.  And it just keeps growing.

To make matters worse, it looks like negative interest rates are headed to the US.  Every time the Fed cuts rates it moves the US closer to negative rates.  And now, says Alan Greenspan, the longest-serving Federal Reserve chairman in history, they will inevitably show up here.  “You’re seeing it pretty much throughout the world,” he says.  “It’s only a matter of time before it’s more in the United States.”  Ron Paul agrees negative rates are headed here.  He identifies this massive build-up of negative interest rates as a symptom of “the biggest bubble in history.”  

No wonder that as negative interest rates spread, informed people turn to gold.  We have noted that as the reported amount of negative interest rate debt has climbed from $12 trillion to $13 trillion to $14 trillion, and now to around $17 trillion, gold has marched higher.

That’s not hard to understand.  If you had to choose between some unreliable borrower who offered you a negative interest rate for the use of your money, or gold, which would you choose?  

The question answers itself.  In the words of Greenspan, “Gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments.”

The negative interest rate phenomena will end in a crash.  Such madness always does.  The world has been through episodes of monetary lunacy before, but usually, they are limited to one or two countries at a time.  A Venezuela here or a Zimbabwe there.  But this time the derangement has gone global.

The best possible safe haven – in fact probably the only safe haven for a monetary calamity of this global scale – is gold.

RME is here to help you avoid being victimized by unsustainable monetary fads and the central bank’s ruination of the dollar.

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