Fed Up: Central Bankers Gone Mad
Consider this: $10 trillion of global debt now yields negative interest. That is, lenders are paying borrowers to take their money! A most absurd and unsustainable phenomenon. Guaranteed to lose money.
Who are these “infinitely wise” lenders? And why pay someone to take your money?
Thanks to the money printing, debt buying binge, and monetary policy regimes of the Bank of Japan (BOJ), the European Central Bank (ECB) and other central banks even the smart money folks have been forced, by their mandates, to “lend” at negative rates.
The current global monetary policies of negative yields are destined to destroy the financial system – banks, insurance companies, pension funds, and money market funds. The same financial system they are supposed to protect – and they did everything they could to prop it up back in 2008 – the central bankers are now inadvertently bent on destroying.
Banks can’t make money with negative rates and flat yield curves. Insurance companies and pension funds can’t pay their liabilities by earning a negative rate. Savers can’t even earn a nickel on their savings. And investors are forced into seeking riskier and riskier assets in search of yield. Something’s gotta give and it will.
For a while, we thought that Janet Yellen and the Fed had better sense than the BOJ and ECB, and was on a path to normalizing interest rates. Nah, they’re just a bunch of talking heads who continuously lead the market to expect rate hikes only to walk back the talk with no action. The single biggest cause of economic uncertainty and volatility. Market participants are just Fed Up!
How will this end? Badly. Very badly. Of course, we don’t know when but negative yields not sustainable. Unless we have repealed the laws of physics.
The central bankers of the world have truly gone mad!
Written by Rajan Chopra.