Submitted by IceCap Asset Management
Putting it all together
1) governments are unable to eliminate deficits
2) global government debt is increasing exponentially
3) 0% interest rates are allowing governments to borrow more to pay off old loans and fund deficits
4) Global growth is declining despite money printing and bailouts And, we've saved the latest and greatest fact for last: as stunning as 0% interest rates sound, the mathematically-challenged-fantasyland called Europe has just one upped everyone by introducing NEGATIVE INTEREST RATES.
As of writing, over 25% of all bonds issued by European governments has a guaranteed negative return for investors.
Germany can borrow money for 5 years at an interest rate of NEGATIVE 0.10%. Yes, instead of Germany paying you interest when you lend them money, you have to pay them interest.
These same negative interest rate conditions exist across many of the Eurozone countries, as well as Denmark, Sweden and Switzerland.
Since the majority of the investment industry unequivocally supports world central banks, it has convinced itself that negative interest rates are actually good for the worldís economy and it will help the world along its sunny path to economic freedom.
Call us dumbstruck, dumbfounded or just plain dumb. But, our every analysis of these policy moves always brings us to the same conclusion ñ thereís a pretty big adjustment in financial markets on the horizon.
6 years ago, we were told that bailing out the banks and auto companies would save the world.
As this worked so well, we were next told that the world needed 0% interest rates. As this worked so well, we were next told we needed money printing.
As this worked so well, we were next told that Ireland, Portugal, Spain, Italy, and Greece needed a bailout.
As this worked so well, next the IMF issued a report recommending a Global Wealth Tax of 10% be applied to help governments resolve their debt problems.
As this worked so well, next the IMF, the EU, and the ECB all declared that if your bank goes under ñ people with term deposits and GICs will pay for the bailout.
As this has worked so well, now every major central bank in the world agrees that negative interest rates will finally be the policy measure to finally tip the world back onside.
This will work so well, that the world should prepare for even more draconian measures to kick start the recovery. The global hunt for taxes has become very popular, as has the movement to physically remove all cold cash.
Yes, as recommended by Larry Summers, the world is moving ever so closer to completely adopting electronic money as the only way to do business. Many say this is good, after all many of us are practically there already. However, this movement towards electronic money is another attempt to eliminate black markets and allow governments to collect more taxes to fund the deficits.
But perhaps, the biggest financial crime not talked about is the damage to the worldís savers. While most do not realize it, but our central banks and governments have clearly decided to absolutely crush savers and in favour of borrowers.
The combination of all of the above failed policies has in effect punished savers, and rewarded borrowers. We now live in a world the elderly can no longer collect 5-6% interest on their savings accounts.
Instead, and unknowingly to most of them, they have become fully invested in the junk bond market and the stock market. Thatís quite the switch in investment strategy.
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Much more in the full monthly letter (pdf)