How Mario Draghi Unleashed A $1.4 Trillion Negative Interest Rate Tsunami

Tyler Durden's picture

Once upon a time, everyone was shocked when one after another central bank adopted what previously was unthinkable: a Zero Interest Rate Policy, or ZIRP. Then, on June 5, the ECB added "awe" to the equation when it became the first major central bank to push rates negative. The move was meant to shock depositors into pulling their money out of banks and into risk assets. It failed, which is why 2 days ago the ECB took awe to the next level when it added QE to NIRP. It did however succeed in one thing: pushing $1.4 trillion in Euro area government debt into negative interest rate territory and right into an abyss that screams deflation.

As JPM nots, the chart below shows an estimate of the amount of Euro area government bonds with longer than 1-year maturity trading at negative yields over time. Around €1.4tr of Euro area government bonds are currently trading with negative nominal yields, almost all of them of core euro governments of up to 5 years maturity. Back in June, before the ECB’s shift to negative depo rate, the amount of euro area government bonds with longer than 1- year maturity trading negative was virtually zero.

So yes: the ECB has failed to boost inflation in a controlled fashion, at least the type measured by seasonally-adjusted CPI metrics (if not by the price of hotdogs in Davos) for now and "controlled-fashion being the key word, because as Russell Napier warned this week, the next step in the process of fighting deflation is literally dropping money out of helicopters, one whose outcome on fiat money should be quite clear, and whose QE will further lead to an outright market collapse (as explained earlier), but it has certainly achieved one thing: sending 20% of Europe's universe of government bonds (according to JPM, the universe of government related securities of around €7 trillion) into negative territory.

The good news: there is still some 80% of Euro bonds that are still trading with positive coupons, if not for much longer.

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falak pema's picture

whats to stop the ECB from changing the NIRP to positive if that be the cause of deflation.

Hey presto and we're away!

All it takes is a interest rate change up during the coming QE beg. March.

knukles's picture

Y'all just wait until they start actually buyin' the shit!  Y'all want negative rates, you gonna be gettin'; negative rates world wide. 
And you all thought that inflation was the way outta this shit.
We're gonna be payin' them to borrow from us to spend on diddly fuck all useless oligarchy pocket lining projects on which they're gonna be makin' money borrowin'!

Talk about free fucking money!

This is the ultimate fucking shafting of the People.

KnuckleDragger-X's picture

The Matress National Bank will be opening everywhere and soon......

knukles's picture


                        0 > -1




                             fuck fuck fuck fuck fuck

Yen Cross's picture

 It took someone to say it! Nice work Knuks.

Bunga Bunga's picture

Gold bashers always said: Gold is a bad investment because it does not pay interest nor dividend.

kowalli's picture

not in new normal.

btw joyflation around the  corner

cherry picker's picture

That genius Forrest Gump had it right, 'stupid is what stupid does.'

The last two World Wars were basicallt started in the European theater.  The conditions are ripe for another major conflict in Europe.  This time it will truly be a World War as North America won't escape unscathed.

The rules of how to live on this planet have been broken by too many lately, the consequences will come.

Enjoy life while you can and ready up to head out of urbania, it will be worse hell there.

WOAR's picture

My advice is to move to Detroit. No, really, take a look at the pictures of the current Detroit. It's pretty much a national park, with no park rangers.

When TSHTF, the Rust Belt is going to be the easiest "civilized" place to cultivate.

noben's picture
noben (not verified) knukles Jan 25, 2015 12:29 AM

Jeez, this is starting to make Bitcoin look like a attractive "Store of value".

kaiserhoff's picture

 I think it's fair to say that no one has any idea what the unintended consequences of this madness will be.

I keep thinking of those old maps, where ships were sailing over a waterfall off the edge of the earth.

Arrogance does not begin to describe the megalomania of the retards in power.

imbrbing's picture


"I keep thinking of those old maps, where ships were sailing over a waterfall off the edge of the earth."

Tinky's picture

Yes, other than Martin Armstrong and "Socrates", we're all in the dark.

Carpenter1's picture

Pardon me for stating the obvious, but CB's are insolvent X 1,000,000,000,000,000


Safe to say that every CB in the world is a dead man walking. And don't give me that "But...they can print forever.." Shit.


Nothing goes on forever, and the immovable object is never seen until the unstoppable force is splattered all over it.

15horses1donkey's picture

I always wanted to meet a person who had the balls to decide between one or the other. You, my friend, with your "immovable object is never seen until the unstoppable force is splattered all over it", have done the unexpected.

Is it because you prefer the word immovable over unstoppable or prefer the word object over force? Or has it nothing to do with words at all?

Romney Wordsworth's picture
Romney Wordsworth (not verified) 15horses1donkey Jan 25, 2015 6:28 AM

Or maybe, given his Carpenter nature, he prefers to saw himself nice 2x4 lenghths & whack people over the skulls with them who ask silly questions.

neidermeyer's picture

Whiskey Bottles

and brand new cars

Oak Tree you're in my way...

ZH Snob's picture

boy, this NIRP stuff sure is a mind-warping concept, but let me see if I got it right: the xyz bank and/or  investment house charges me interest to hold its bonds while inflation nibbles away at the collateral, is that about it?  have I missed something? 

now I will play the bewildered actor.  what is my motivation?

cossack55's picture

I believe that would be BIRP (Bullshit Interest Rate Policy)

Brian's picture

There must be a floor on negative interest rates, right?

Seems to me there is a new trade, which is short negative interest rate bonds and cash in a vault to earn the spread.

The cost is just the insurance and security.  

Is there anything I'm missing?  At some point, just short $100 Billion in negative yield bonds, take the cash and buy insurance on it and store it in a big armoured vault undergroud to pick up an absolutely risk-free .35%?

kaiserhoff's picture

Considered that, but the rates can always go negativerrrrr, and fuck you up.

Lordy, my head hurts just thinking about this crap.

Uber Vandal's picture

Yes, there is one important ingredient missing from this most foul sandwich.

The complete elimination of physical cash, to where everything is 100% cashless, all electronic, so there would be no way to save one's money in any way from a bail in, in a mattress, etc.

Of course, it would be "for the chilluns" to "fight the war on drugs/terror/tax evasion/insert meme here"



Brian's picture

Damn Uber you are right.  That is the way to break the plan.  It will certainly come to pass, since even without shorting negative rate bonds, the public, at some point, will simply "invest" in cash to "earn" their zero percent, which is better than their negative yield.  Removing cash is the only way to prevent that and force a negative yield.

With no cash, yields can be cut forever.

Wow.  Gold.

Uber Vandal's picture

Work already in progress:

Denmark’s Central Bank Nationalbanken plans to stop printing banknotes and minting coins by the end of 2016. It claims that people increasingly prefer to use credit cards and electronic money in transactions rather than cash.

And, coincidentally too, of course, Denmark led the way with negative deposit rates back in 2012:

Denmark did it, imposing a -0.2 percent rate on bank deposits in 2012. As Jack Ewing of The International New York Times reports, there was no drastic effect one way or another — neither a remarkable boom in lending and economic activity, nor wholesale withdrawals of deposits from the Danish banking system. “Was this a silver bullet for the Danish economy? No, it was not,” said Arne Lohmann Rasmussen, chief analyst at Danske Bank in Copenhagen, told Mr. Ewing.



Romney Wordsworth's picture
Romney Wordsworth (not verified) Uber Vandal Jan 25, 2015 6:31 AM

work already in progress: EBT cards [doesn't change a thing for them].

control room's picture

Who get's their name in the paper by selling bottoms and buying tops? Governments do. with taxpayer money.  

knukles's picture

Don't you get this?
They're getting paid to borrow!
The ultimate shafting.
Borrowing to pay for shit for the oligarchs makes money for them!

15horses1donkey's picture

Tell us something positive, Knuckles. Like how it means that young couple get a place together. Or how people will be better at math because they are forced into sharemarket trading rather than simple saving or buying of bonds. Positive.

Yen Cross's picture

 Smart comment F/P. Germany has a history of disputing ratified contracts. The German government/reinstag may be trying to

 look like the good guy. The wheels fall off the cart, and they say, " I told you so, let's try something else"

venturen's picture

pure genius. Get people to pay you to loan you money.

knukles's picture






Caviar Emptor's picture

The great "oil tax cut" will never arrive. Your buying power will DEcrease in 2015. There will be no deflation in the sense of lower cost of living, doing business and working. That will only increase. But the purchasing power of people's incomes will drop. Paper asset inflation will continue. Savings will plummet. Rich will get richer. And the quasi-nationalized economy won't crash

Soul Glow's picture

Europe is losing so much money they can't spend it fast enough.

kowalli's picture

What's the problem? they need just to print more

K_BX's picture

I borrow money from you and you pay me interest for the privelege of spending your money for the next five years - maybe I´ll pay you back. what could possibly go wrong?

The crazy thing about it? Germany just refuses to take this opportunity - instead they proudly announced a black 0 for new debt.

Yen Cross's picture

 Fuck You, PayPal! OOps PayMe/ lol

buzzsaw99's picture

The smug storm wrecks millions of households in Southern Europe, meanwhile the ECB disappears "completely up its own asshole"... [/southpark ripoff]

Yen Cross's picture

 Buzz, I fall to sleep watching South Park.

 It's amazing how the creaters have become so much MOAR realistic. "conservative"

 I'd love to go golfing with Trey Parker. lol

NoWayJose's picture

Why EU QE? EU banks loaded up on Italian and Spanish bonds when rates were 7%. Now those rates are under 2%. But who would be an idiot to buy bonds at that low rate from these two deadbeat countries? Enter the ECB and National Central Banks - who get to buy these bonds from the EU banks 'at all-time high prices and all-time low rates'!

PGR88's picture

How can the world's central banks, particularly the ECB go back now??

Even Greek or Portuguese bonds at 4% or 5% is going to wreck those places.

all-priced-in's picture

It is like going to a whore house to get laid.




But then paying so you can give some fat hairy guy a BJ.



Who has time for that?


Besides  Draghi and Obama.





yogibear's picture

End-game for the western central banksters.

Loan-to-value 100% and buy physical PMs. Then default. F the banksters.

disabledvet's picture

Once there was a way

To get back homeward

Once there was a way

To get back home


Please little darling don't you cry.

And I will sing you a lullaby...


"John, you're gonna carry that weight/carry that weight

A long time....

Al Tinfoil's picture

  Some thoughts if I may:

 1. The ECB QE program for purchasing sovereign bonds is a way to give a Euro printing press to the central bank of each of the EU nations.  That enables each nation to go on a debt-fueled spending binge (or just continue with a debt-fueled spending binge on bloated bureaucracy, social programs, and subsidies).  The 2009-2010 "bailouts" of the PIIGS were actually bailouts of the German, French, and UK banks that had lent so recklessly and were now holding worthless sovereign bonds from the PIIGS and IOUs from the local banks in the PIIGS.  These bonds and IOUs were transferred to the Troika and austerity was imposed (per IMF rules) on the PIIGS, to ensure that their budgets put loan repayment as 1st priority.  

 2. Structural reforms? Not gonna happen unless and until economic meltdown forces the nations to reform.  Voters are too hostile to reforms, and politicians do not dare enact reforms in France and Italy, for example.  The austerity programs in the PIIGS came about only because the IMF agenda dictates them. Austerity has created economic meltdown, high unemployment, poverty and misery.  Voters are getting very hostile to austerity and are flocking to lunatic leftist and rightist parties with unfinanceable magic agendas for prosperity.  ECB QE is useful as an implied promise to the PIIGS that if they stay in line, the ECB  will provide some relief.

 3. The liquidity injections from the 1990s onward have so flooded the World with liquidity that there is far more than necessary or justified.  Vast sums of money are seeking returns in a World with a real economy that is stagnant if not moribund.  Recent bouts of apparent prosperity are bubbles or debt-fueled consumption, while real wages have fallen.  "Investors" have jumped into anything that looks like it will produce return, and bid up the prices of bonds to the point that returns are negative, even without taking inflation into account.  The World economy is simply not generating enough wealth to cover all the demands made upon it.  QE uses pretend money to make up the difference.


  To put that in somewhat modified form: The idea of getting a return on capital is based upon the idea that that capital can be lent to an enterprise that will use it to generate wealth, and part of that wealth generated can go to paying the cost of borrowing.  There is a dearth of wealth creation to support the vast sums of money floating around, let alone cover the costs of governments, militaries, and unfunded pensions and social programs.  ECB QE is merely inventing money to throw at the uncovered debts and continuing deficit spending of governments and put off the eventual collapse of the fiat pyramids.

It also allows the continued cheap financing of stock market bubbles and carry trades that yield large profits for the well connected. It costs a lot of money to keep politicians and the elite happy.

Niall Of The Nine Hostages's picture

All "structural reform" means to the banksters is that the proles must accept Swedish taxes (to service theft bonds) on top of Moldovan wages (if they bother to pay you at all). Forget job security or "work-life balance." Our masters want only young healthy males willing to spend every waking moment at construction sites as employees. Why the hell bother employing a European as anything but cannon fodder or a white slave when young Arab and African bucks are washing ashore every day?

Tinky's picture

Another good summary. Keep 'em coming, Al, and thanks.

SoDamnMad's picture

Forrest was right.  'stupid is what stupid does"   Before this negative interest spread, my bank (European)  offerred me a CD with a good interest rate for 14 months.  With the fall of the Euro I have gotten "negative interest" per se.  They must talk this shit up at Davos every year and catch EVERYONE IN THEIR SHITTY NET.   I gotta look up the address of the nearest branch of Bank de la Mattress.

jonytk's picture

Evobanco offers 1,1% interests on your Eur savings account. And 0 fees and free atms worldwide if you have regular money income.(at least 500Eur a month).

Rootin' for Putin's picture

if interest rates get negative enough, does your debt pay itself off?

timmeh's picture

*mission accomplished*