This page has been archived and commenting is disabled.

Lost Interest

Tyler Durden's picture




 

Submitted by Chris Andrew and Mustafa Zaidi of Clarmond House

List Interest...

The developed world is not currently in the grip of a major World War, however, the debt burden has increased as if it is. The general population may not be ready to suffer the further sacrifices that this massive deficit increase will lead to, and may unwillingly be becoming the ‘lost interest generation’.

"THE SINEWS OF WAR ARE INFINITE MONEY”.

Thus observed Cicero on the dual monopolies of the State, money and warfare. But how does the State amass this limitless largesse? It does so in three simple ways: taxation; debt issuance; and currency debasement.

When there is a war, the State issues debt to fund the conflict; citizens purchase this debt and await a future rise in taxation, a currency devaluation and a significant increase in the national debt. The contract between State and citizen is clear; in times of war, sacrifices are required, not only on battlefields but also in bond yields.

This can be seen time and time again, from the Prestiti, issued by Venice in the 1100’s, to the National Savings Movement in the British Empire for both world wars of the twentieth century. Indeed the slogans such as ‘Lend to Defend’ and ‘War Savings are Warships’ connected the population to the war and the national debt.

Disconnect

Over the last seven years citizens have lived through a wartime-like increase in national debt, but with no war to explain it. The population has been detached from this peacetime debt explosion, the purpose of which has been to maintain consumption, collateral and capital. These three C’s lack the somber seriousness of war. The citizen is justifiably confused, asked as they now are to bear the increased debt burden, paltry interest rates and possibly currency debasement.

Given the rise in global debt burdens, governments now rely upon low interest rates to keep the cost of interest payments to a minimum. Sorry citizens, the State has redefined the contract.

A tax by any other name

The sovereign debt of the developed world has risen from approximately 80% of GDP to 110%, an additional $12 trillion of debt, while interest rates have fallen to nothing. A ‘normal’ short term interest rate is one that is in line with inflation, which has been an average of 2% for the period 2007-2013. Therefore we can roughly calculate that ‘citizen-savers’ of the world have lost $1.75 trillion in unreceived interest. This is nothing short of being an undeclared tax levied by the State.

Modern day example

Has this ever happened before? Yes, in modern day Japan interest rates have been zero for 19 years. However, the important difference is that there has been deflation in Japan during this entire period, so the savers of Japan have kept purchasing power. Rather than trample the savers it was the asset markets that suffered, with the stock market and property prices taking the brunt of zero rates and credit contraction.

As commented on in an earlier piece (‘Golden Calf to Raging Bull’ - May 2013) Central Banks have placed the economic world on an ‘asset-price’ standard. Asset prices have become the collateral upon which credit is issued and therefore must be protected, even if this means sacrificing savers on the altar of zero interest rates. The chances of central banks allowing interest rates to be higher than inflation is remote.

A Forlorn Hope?

As the quantum of debt has increased, a rise in interest rates would bring hefty costs to the State; currently, interest outlay in the USA alone, at 2.5%, is $400 billion  per annum. Any sustained interest rate rise with the continued level of deficit is not manageable without growth being greater than the yields paid. Simply put, interest rates cannot rise without high growth, therefore a ‘lost interest generation’ is unfolding.

The only growth lever left for the State is currency devaluation. As Ben Franklin stated “wars are not paid for in wartime, the bill comes later.” The State’s peacetime but warlike increase in debt awaits its tab.

Bill Please.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 03/03/2014 - 20:07 | 4504287 Cacete de Ouro
Cacete de Ouro's picture

I lost interest after the first paragraph.

Mon, 03/03/2014 - 20:14 | 4504310 Abi Normal
Abi Normal's picture

I lost interest, period!  What happens, happens! Not didly squat I can do about it anyway...

Hell no, I won't go...

Molon Labe, BITCHEZ!

Mon, 03/03/2014 - 20:18 | 4504327 max2205
max2205's picture

Don't remind me.....why aren't seniors protesting in front of congress...I don't get it

Mon, 03/03/2014 - 20:20 | 4504334 CH1
CH1's picture

And the suckers get screwed once again!

Keep obeying!

Mon, 03/03/2014 - 20:39 | 4504391 macholatte
macholatte's picture

 

Over the last seven years citizens have lived through a wartime-like increase in national debt, but with no war to explain it.

 

Dipshit!  Tell that to all the families of the killed and maimed soldiers.

Mon, 03/03/2014 - 21:28 | 4504541 Carl Popper
Carl Popper's picture

Some war

 

I think we have had more military MVA deaths than combat deaths, dipshit.

 

 

 

 

Mon, 03/03/2014 - 22:43 | 4504884 merizobeach
merizobeach's picture

"inflation, which has been an average of 2% for the period 2007-2013"

Oh, has it been?  Really?!

TYLER, what the fuck are you doing posting these fucking lies?!?

Mon, 03/03/2014 - 21:56 | 4504649 Stuck on Zero
Stuck on Zero's picture

The War is on the middle class.

 

Mon, 03/03/2014 - 20:29 | 4504367 Abi Normal
Abi Normal's picture

there is OAS...what will come of it, dunno?!

Mon, 03/03/2014 - 20:32 | 4504374 booboo
booboo's picture

The blue hairs are living large on free hips, lips, and  blue pill boners. Most have their pension checks rolling in on time as the pension funds are keeping their heads above water riding on a liquid wave of Bernanko bucks and the SS ponzi is being drained regardless of what Bruce Krastings and the Bureau of Making Shit Up say's

Mon, 03/03/2014 - 21:25 | 4504533 The Most Intere...
The Most Interesting Frog in the World's picture

If we just put more in and extend the retirement age to 85 we gonna be gettin' all the benefits some day.  God bless America!

Mon, 03/03/2014 - 20:19 | 4504331 kaiserhoff
kaiserhoff's picture

Wrong.  There is good data on this going back hundreds of years when the pound was Sterling.

A normal market interest rate is 3% REAL.  Add 2% inflation (too low) and two points for taxes and you're looking at about 7 percent nominal, at best, for the short rates. The gubbermints are toast.

Mon, 03/03/2014 - 20:07 | 4504292 timehill
timehill's picture

We're broke a current historicaly low rates.  Just imagine where we would be at normalized rates.  You want to blow hyour minds?  Try 18% home mortage and 23% commercial mortages under the Carter Administration.  If you think we're broke now!!!!!!!   The FED has put this country in a bix that it cannot escape from.  It's either non-stop QE or the reality of bankruptcy that even the lowest educated on the food chain will recognize!

Mon, 03/03/2014 - 20:18 | 4504321 Abi Normal
Abi Normal's picture

and...and...credit cards at 30% ROFLMAO...we were there in the mid-to-late eighties!! My mortgage rate was 15.5%, CC's at 27%...we're headed there again, but the Fed and Tres can manipulate things for a while, now that we have no debt limit....arrrrg!  Neutered Congress, a weak Despot at the helm, tensions at home and in the world at an all time high, man we are in for a world of hurt, me thinks!

Mon, 03/03/2014 - 21:19 | 4504514 Shad_ow
Shad_ow's picture

Yes, I had a CD at 17%.  Mortgage was at 13.5.

Mon, 03/03/2014 - 20:48 | 4504426 snowlywhite
snowlywhite's picture

err... there's also war.

 

Actually, that's the current predicament, isn't it? We'd "need"(the planet, the economy, whatever) a war, yet we can't make it due to nukes. Kinda killed the whole statistic, didn't it?

Mon, 03/03/2014 - 21:18 | 4504507 The Most Intere...
The Most Interesting Frog in the World's picture

Oh no no no... don't you understand that right now is just like 1982 when we started the biggest bull run in history???  Yep, we are going straight to 40,000 on the dow with zero interest rates....

Mon, 03/03/2014 - 20:08 | 4504293 timehill
timehill's picture

We're broke a current historicaly low rates.  Just imagine where we would be at normalized rates.  You want to blow hyour minds?  Try 18% home mortage and 23% commercial mortages under the Carter Administration.  If you think we're broke now!!!!!!!   The FED has put this country in a bix that it cannot escape from.  It's either non-stop QE or the reality of bankruptcy that even the lowest educated on the food chain will recognize!

Mon, 03/03/2014 - 20:25 | 4504357 negative rates
negative rates's picture

They won't reconize 18 trillion dollars, it's curtains folks if you even kiss 18T. Do the math!

Mon, 03/03/2014 - 20:30 | 4504369 mayhem_korner
mayhem_korner's picture

 

 

18 Trillion dollars is the GAAP deficit for the US in just the past 3-4 years.  They won't even recognize the actual deficit inclusive of all liabilities ("promises") that need to be accounted for.  The $17T deficit is as under-reported as any other measure coming out of Central Command.

Mon, 03/03/2014 - 22:27 | 4504299 Judge Crater
Judge Crater's picture

OT: Has anyone else noticed the strange outcome of the Oscar wins.  The director of the Best Picture winner, "12 Years A Slave" gets snubbed, indicating, to paraphrase Billy Crystal, "12 Years A Slave" directed itself.  I wonder if the disconnect has something to do with the following excerpt from Forbes on the new electronic voting system for the Oscars this year:

"But [PriceWaterhouseCoopers'] mission for the Academy will now change. The Academy of Motion Picture Arts and Sciences announced almost a year ago, January 25, 2012, that it had selected Everyone Counts, Inc. for its first foray into electronic voting for the awards. Unfortunately, for PwC and the Academy, the design and implementation of the new system have been fraught with issues, delays and complaints from the start. The results from the first phase of the voting under the new system, the award category nominations, have been questioned, according to the Washington Post."

Fixing electronic ballots is a lot easier than changing the results from paper ballots, which leave a paper trail.

Edit: I notice that this posting has been pushed down in order, since at Zero Hedge, someone makes judgments on where a posting should be.  Last year, when Michelle Obama, a Hollywood outsider, somehow got the right to award the Best Picture Oscar, "Lincoln" was a favorite to win but didn't.  Someone did not want another Obama favorite, "12 Years A Slave," to lose this year. Though it was a Las Vegas oddsmaker favorite, there is no way that "12 Years A Slave" could have won the Best Picture Oscar without also winning the Best Director Oscar.  Unless it had outside help, help to alter the ballot count for Best Picture. Comic book "Gravity" should have won the Best Picture Oscar, it won 7 Oscars already, it was on a roll.  Crummy movies that supported U.S. government policies in the recent past, the movies "Argo" and "The Hurt Locker" have won Best Picture/Best Director Oscars.  Apparently, indicating here that the Oscar vote can be fixed after the ballots are in is a no-no.  For all its surface contrarian facade, when the rubber meets the road, Zero Hedge kowtows just as well as mainstream press news sites. No real surprise there. 

Mon, 03/03/2014 - 20:10 | 4504300 XRAYD
XRAYD's picture

That is how they "fixed" the banks, Fannie, Freddie, AIG, GM etc. and let insovent companies steal from savers!

Now they all petting themselves on the backs.  In a just world, they should be behind bars.

Mon, 03/03/2014 - 21:23 | 4504525 Shad_ow
Shad_ow's picture

Elections are easy too.  Just saying.

 

Mon, 03/03/2014 - 20:20 | 4504337 nakki
nakki's picture

Pure horseshit. Anyone who thinks inflation is running 2% a year is a chimp or lazy.

Mon, 03/03/2014 - 20:27 | 4504351 mayhem_korner
mayhem_korner's picture

 

 

Hey, now wait just a minute.  Why can't one be both a chimp and lazy?  Huh?  To me, the oval office is occupied by a "both".

Mon, 03/03/2014 - 20:43 | 4504406 nakki
nakki's picture

Sorry the both part was implied, and let's not limit this to the current actor in chief. Three of the last 5 in my opinion have been both. Bush 1 being neither and Clinton just being lazy (I mean if you're going to fuck someone show the office some dignity). At least JFK was banging stone cold foxes.

Mon, 03/03/2014 - 22:13 | 4504723 chemystical
chemystical's picture

"At least JFK was banging stone cold foxes."

You mean getting head from a chubby horsefaced jewess wasn't dignified?

Opportunity to segue to one of my favorite "Did you know...?"

...that 2 back to back D.C. major sex scandals involved:

2 jewish girls aged 18 to 25 (Monica Lewinsky and Chandra Levy) who were both from California and whose fathers were oncologists? 

The probability of randomly picking 2 people in the USA and having them both be jews is 1 in 2500.  2 female jews?  1 in 10,000.  2 female jews between 18 and 25?  1 in 1,000,000.  2 female jews 18-25 from CA?  1 in 25,000,000.  2 female jews 18-25 from CA whose fathers are oncologists?  1 in 48,225,308,641,975.

Kinda strains belief, eh?  Oy, the cohencidence ©.  Sound more like they and/or their fathers were from the same cell of operatives.  (See: sayanim).  Gary Condit was House Intelligence Committee member - for those who've forgotten.  Clinton was POTUS - for those who'd like to have forgotten.

Demographics, industry data, and stats don't lie.  I don't know the % of oncologists who are jewish and the extent to which they are (almost certainly) over-represented in that subset, so I subbed the % of oncologists in the general population (0.0018) and generously multiplied that by 4.

 

 

Tue, 03/04/2014 - 10:00 | 4506284 StandardDeviant
StandardDeviant's picture

Have you really nothing better to do?

Mon, 03/03/2014 - 20:20 | 4504338 Promethus
Promethus's picture

The name of this game is financial repression. I remember under Jimmy Carter getting 7% on a CD and a free  toaster.

Mon, 03/03/2014 - 20:31 | 4504361 Cacete de Ouro
Cacete de Ouro's picture

Toaster.. well it's better than a crummy Spider-Man beach towel. At least it did something useful like make toast.

http://www.zerohedge.com/news/broke-bankia-runs-out-toasters-it-has-bold...

Mon, 03/03/2014 - 20:22 | 4504344 mayhem_korner
mayhem_korner's picture

 

 

The interest rate paid on debt only matters if there is a path to extinguishing that debt.  Since there is not, the interest rate serves only as a gauge of the rate of the devaluation (i.e., if interest rates were 20%, money printing would be increasing exponentially faster).

Mon, 03/03/2014 - 20:24 | 4504348 walküre
walküre's picture

Lost purpose.

Paper pushers are completely obsolete other than sorting through the mess that are handwritten and half completed AHC applications.

Soon the robot will tell you: If you can't complete an application online, you are not covered ** ERROR ** DOES NOT COMPUTE

Just who is serving who I wonder several times a day in unrelated incidents.

Mon, 03/03/2014 - 20:25 | 4504355 Spastica Rex
Spastica Rex's picture

How can you borrow from the future if there's going to be sub 3% annual growth? Perhaps all we can afford to do as a society is to keep the very top of the pyramid happy, and the bottom of the pyramid drugged, fat, and complacent.

Mon, 03/03/2014 - 20:26 | 4504360 Lester
Lester's picture

More like 3% plus whatever risk factor of inflation.  That was the traditional formula for valuing a bond issue.  Perhaps a bit less baseline interest for a tax-free municipal or corporate entity like a 1950s early 60's General Motors...

 

Yet, The non-Federal, non-Reserving non-Bank began making no-interest loans to their member banks in the late 90s and that was what drove the stake through the CD market and concept of principal on deposit yields.  Of course, anyone with less than many millions then scurried into common stocks and was promptly fleeced by 75% NASDAQ collapse and all the other various "plays" that were forms of arbitrage attack upon long regarded "secure" companies and their stock.  The sheep are all but fully sheared...

 

The criminality is there in plain view.  Bonds were never insured, but as with the FSLIC fraud of the 80s, specific corporate bonds could now be attacked & collapsed with a double-dip into the pocket of the insuring entity.  AIG under Hank Greenberg was not going to insure derivatives.  So, Hank was given his walking papers and then AIG could be plundered using securities fraud.  After all, when Henry Paulsen threatens "Tanks will roll" and Congress has the excuse to go along, what else was going to happen but the fraudulent plunder of AIG and then the American Treasury for everything else they could shake out of US.

 

Those who have small fortunes these days likely had large ones before the manipulations began in earnest.  Those who have large ones were just part of the looting party...

Mon, 03/03/2014 - 20:31 | 4504370 I Write Code
I Write Code's picture

This is nothing short of being an undeclared tax levied by the State.

No kidding.  The upside being that it hits several trillion overseas dollars that could not otherwise be taxed, afaik.  The Bernank understood this well and I think it was a major motivator for his ZIRP.  It still hits us in the US much harder, but the tax on the overseas funds is significant.

I used to keep a wad of cash in the money market funds and was happy with the 5%.  Those days and automatic yields are far gone, dang it.

Not to mention I paid tax on that interest (officially "dividends" actually).

Mon, 03/03/2014 - 20:42 | 4504404 youngman
youngman's picture

A whole generation will never learn what a savings account is or why you have one.....to them its just spend spend spend...save for what?????

Mon, 03/03/2014 - 21:01 | 4504452 Robot Traders Mom
Robot Traders Mom's picture

I was reading an article on Salon earlier about Krugman "nailing it" to inflationistas or some bullshit. The problem is that some of these indie rags, while good at covering civil liberties, don't have a basic clue about economics. ZH is about it. Almost everyone else continues to cut their nose to spite their face because it fits their political paradigm. This whole article should be common knowledge. 

 

www.TopTheNews.com 

Mon, 03/03/2014 - 21:13 | 4504486 The Most Intere...
The Most Interesting Frog in the World's picture

"The developed world is not currently in the grip of a major World War, however, the debt burden has increased as if it is."

 

Thank you!  I have been tired of hearing that this time frame is similar to WWII.  In WWII we were fighting off NAZIs, Fascists and Japan bent on world domination.  What are we fighting now?

 

Goldman Sachs would have lost money without the bailouts...

Mon, 03/03/2014 - 21:19 | 4504516 moneybots
moneybots's picture

"The chances of central banks allowing interest rates to be higher than inflation is remote."

 

Central banks aren't really in control, math is.  Central banks cannot lose control of XXXX, unless they were never really in control of XXXX in the first place.   They had the illusion of control.  Math ALWAYS wins.

Mon, 03/03/2014 - 21:31 | 4504545 kellycriterion
kellycriterion's picture

Ding, ding, ding, we have a winner. Congrats to Mr Mayhem.

The perpetual debt roll is indeed one of the interrelated moving parts to the modern confiscation game. Along with taxes, inflation, currency manipulation, financial repression, capital controls, and the real crowding out.

Now add to that the game has gone global and manifests itself differently on local economic and political playing fields, and try to get the message across to the masses.

Just consider the myopia and blame game disinformation on ZeroHero.

Mon, 03/03/2014 - 21:32 | 4504549 moneybots
moneybots's picture

"The only growth lever left for the State is currency devaluation."

 

Except that every other country wants to devalue its currency.

Mon, 03/03/2014 - 21:33 | 4504553 rustymason
rustymason's picture

Ich beantrage dass wir einen neuen Fuehrer waehlen.

Mon, 03/03/2014 - 21:37 | 4504559 moneybots
moneybots's picture

"Therefore we can roughly calculate that ‘citizen-savers’ of the world have lost $1.75 trillion in unreceived interest."

 

Wait until they come for the principle, too.

Mon, 03/03/2014 - 22:09 | 4504705 Duc888
Duc888's picture

 

 

Good thing there's no food and fuel inflation, otherwise we'd have real problems...

oh...wait..

Mon, 03/03/2014 - 22:11 | 4504716 Duc888
Duc888's picture

 

 

 

"The developed world is not currently in the grip of a major World War, however, the debt burden has increased as if it is."

 

Well, actually, we are in a worldwide war.  The Banksters have weaponized money.

Mon, 03/03/2014 - 22:57 | 4504949 syntaxterror
syntaxterror's picture

The Free Shit Army doesn't pay interest. And they don't pay taxes either.

Mon, 03/03/2014 - 23:33 | 4505094 bluskyes
bluskyes's picture

True, but they are also just pawns. Their only use is to maintain the facade of "democratic legitimacy" Once the facade has been completely dis-mantled, and they are no longer useful -  they will be sacrificed - like all pawns.

Tue, 03/04/2014 - 01:01 | 4505299 malek
malek's picture

 a wartime-like increase in national debt, but with no war to explain it.

Well let me see - we have the following declared wars
The War on Poverty
The War on Drugs
The War on Terror

plus many more undeclared ones such as:
The War on Savings
The War on The Middle Class
The War on Taking Responsibility
The War on Saying It As It Is (a/k/a Political Correctness)

So overall the people got quite a bang for the national debt increase...

Tue, 03/04/2014 - 06:19 | 4505805 AdvancingTime
AdvancingTime's picture

With short rates close to zero, real rates will stay negative. As for long-term rates, government-bond yields are below 2%, the three relevant central banks are targeting an inflation rate of 2%. Looking forward most bond investors now expect to lose money in real terms.

The level of interest rates can be viewed as a price which balances the desire for saving with the demand for investment. These low interest rates come with a hidden cost in how people take on more risk and alter spending plans. More on the hidden cost of low interest rate policies in the article below,

http://brucewilds.blogspot.com/2013/03/low-interest-rates-and-their-cost...

Do NOT follow this link or you will be banned from the site!