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Europe Enters New Year With Nearly $2 Trillion In Sub-Zero Interest Debt
Earlier this month, Mario Draghi disappointed markets by failing to deliver an outsized depo rate cut and an expansion of monthly PSPP purchases.
It’s not that the ECB didn’t ease. They did. It’s just that they didn’t ease enough, because when every DM central banker has gone Keynesian crazy (or, “full Krugman” as it were), a 10 bps cut doesn’t “cut” it (so to speak), and a six month extension of QE had been priced in at least since September.
With EU inflation still stuck in Japan mode and with GDP bumping along at the "new normal" pace of what might as well be 0%, the market expects more from Draghi going forward. Need proof? Just look at yields. “As the European Central Bank wound down its asset purchases for the year, the amount of euro-region government bonds that yield less than zero was at about $1.68 trillion, indicating investors see the potential for further easing of monetary policy in 2016,” Bloomberg writes, adding that “a slump in oil prices is supporting economists’ view that the ECB is unlikely to veer from its accommodative policy stance as it struggles to achieve its inflation goal of just under 2 percent.”
"So many sub-zero-yielding securities indicate that there is a belief that there is no real inflationary pressures evident yet, and the ECB will remain ready to do more if required,” Cantor's Owen Callan says.
Perhaps. But remember that at this point, each incremental purchase of EU govies (especially bunds) brings the ECB closer to the endgame wherein there are simply no more core EGBs to buy at which point it's either purchase more from the periphery or move into riskier assets and with political turmoil playing out in Spain and Portugal, it's not entirely clear what's riskier: sub-sovereigns or PIIG debt. For those who need a reminder of just how scarce purchase-eligible core debt is becoming, here's a helpful graphic from Citi:
Of course everytime the ECB eases it effectively boxes itself in. That is, Draghi is "chasing his own tail", as we documented here. So what's a "New Normal" central planner to do? Buy corporates? Buy stocks? Or simply drop the depo rate floor altogether thus guaranteeing the central bank will lose even more money on its multi-trillion sovereign debt book?
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Good luck to the Dragh Queens.
It's just paper debt. Doesn't mean anything.
Meh, it's only fakey-doo fiat money.
More toilet paper coming off the printing press will solve that debt problem.
Until it doesn't.
Not really, any normal investments yields interest or a divi and when it doesn't someone is missing an income stream and somewhere cuts need to be made.
In Europe, the pensionfunds have to be invested 75% in european bonds by law and if they don't yield shit, those funds will get into even deeper problems.
And that is where the true trickle down effect actually happens. If pension funds yield less, pensioners spend less and the entire real economy suffers.
Pensions can and will be eliminated - "they" dont want to extend the life of the population either young or old - without survival income they dont get married / have children and the old die off faster - all of which yield desireable demographic changes
cheap multi cultural multi language sheeple are the desired mix for Exploitation - current temporary place holders need:
Elimination, Erradication, Eviseration and Extermination -
good machines walk to the right in an endless circle -
Midnight Express: "Why don't you walk the wheel with us? What is the matter my American friend? What has upset you? Oh! I know.
The bad machine doesn't know that he's a bad machine. You still don't believe it. You still don't believe you're a bad machine? To know yourself is to know God, my friend. The factory knows, that's why they put you here. You'll see... You'll find out... In time, you'll know."
We have arrived at "PEAK STUPIDITY".
The price of REAL CAPITAL is the INTEREST RATE.
But CAPITAL is being COUNTERFEITED by Central Banks so the current interest rate is fraudulent.
And people believe that there will not be any consequences to this fraud.
So, yes, we are EXCEPTIONAL that is EXCEPTIONALLY STUPID.
We arent even at the foothills of ignorance yet... Wait. Watch what the republicans do for Puerto Rico, Chicago, NJ, california etc. before the elections...... we have a long ugly hike to peak ignorance.
Draghi will just shift to European stock ETFs next.... thats good for pensions by the way so its an obvious.... that will kick it say 2 years, and then into Peripheral debt, and then municipal debt. He has another 8 or so years to go. then when he owns it all can he plant the flag on top of Mount Sachs.
not so much counterfeited, orez, we must vocally acknowledge neg rates are nothing less than the deliberate, direct DESTRUCTION of capital
If not for sub-zero debt, Europe would have difficulty paying off its debts. In any case, many European countries will eventually default.
Sub-zero debt is coming to America soon as true US debt exceeds $210 trillion today, or over $1,720,000 per taxpayer, per Kotlikoff.
Kotlikoff goes on to illustrate that the fiscal gap is increasing at an alarming rate and that delay makes our problem much worse. In 2003, just a little more than a decade ago, the fiscal gap was $60 trillion. But by last year it had catapulted to $210 trillion (2014). The fiscal gap may not continue increasing as rapidly as it has over the past decade, but with each passing year - as Congress and the President do their best to avoid action - our hole grows deeper by substantial amounts.
http://www.brookings.edu/research/opinions/2015/04/08-federal-debt-worse...
When the storm finally hits, oil, gold, food, etc will go through the roof.
As Europe and China stumble and crumble due to overwhelming debt and gross government corruption and incompetence , the USD and US Treasuries will get ever stronger due to capital flight to the remaining safest place.
That is where my capital will be waiting for the boost UP.
Every time a I read an article about government debt, I become numb. Whenever I see "X country is Y trillons in debt" I feel nothing. Why? Because no-one else seems worried. The debtors are calm about being trillions in debt and, even more curiously, the creditors are sanguine about the people who owe them money.
Have I lost all sense of reality? I'm a strong believer of "neither a borrower nor a lender be" (within reason. You can't buy a house with the loose change in your pocket), but countries are perfectly fine about being under water in debt. Do they know something I don't? Or, as I secretly suspect, are the panicking behind the scenes?
When I hear about a country only billions in debt, I almost applaud them because, in this messed period of human history, that is the considered "prudent".
Logically, there has to be a default. There no way all of this debt can be paid off. But which was will it be paid off? Hyperinflation? Or non-payment? I think it will be hyperinflation. Which will make gold and silver investment that much more valuable. But until someone (from either side of the equation) says "What the hell are we doing?! We'll never pay this back!/We'll never get this money back!" the world will keep turning.
Ponzi scheme? What Ponzi scheme....?
The wealthy have to put their money somewhere. Putting your money in a bank that's insured up to $100K or whatever is not appealling to them. They know the better bet is with government bonds. Government bonds are the last thing a government will let fail. A government will confiscate deposits or go to war before they default on their own debt. It's really the last line. They may be unsafe, but they are the safest. I don't buy them or encourage people to do so, I'm just saying this is how people think.
Thank you for that. I'd never of thought of it like that. It makes sense what you say.
What he says is true, but what those investors now need to recalculate is what are the implications of the IMF delcaring it will only consider debts in $US as subject to its provisions? Because whether or not that has a direct impact on the perceived solvency of targeted nations, (ie the bonds being effectively written off) , it may well come to be reflected in higher interest rates by bond vigilantes to account for the additional IMF induced risk
The wealthy have put their money on a bank on a different planet. Safe of bank runs by humans, no interference of the FED and not being screwed by a Swiss-like government. Why do you think al those SpaceX missions are for... If it is unclear for normal people of alean life exists let alone would they believe that there woud be banks on alien planets where you can safely hide your money. I have hide my money on comet XYZ-123.
"A government will confiscate deposits or go to war before they default on their own debt"
Not necessary for the US. The Federal Reseve will just print to pay bond sellers and then welcome you to hyperinflation.
Bingo! The last man standing will be printing madly as everyone else one by one falls down. All they need to do is keep paying the forces protecting them from being hung.
Barter is just about the only way one is going to get paid a fair value going forward as a producer.
All the rest of this shit show will simply keep dancing because it works for them.
ALL of those predicting hyperinflation, ESPECIALLY the gold cultists, have been EXACTLY OPPOSITELY WRONG - we are clearly entering the era of HYPER-DEflation instead.
Too many reasons to waste time posting here, but if you look at prices for EVERYTHING coming out of China, which the rest-of-world proactively made into the world's processing and manufacturing center to exploit cheap labor, then you know that it is true.
I have been STUNNED at the UNBELIEVABLY low prices that Chinese suppliers are charging for the full range of products that I use for my diverse businesses - eg copper-based electrical products are now selling for ONLY 1/5 what I used to have to pay - so I am stockpiling products while the liquidation sale is running hot and will profit greatly from the massive over-capacity that has been built up in the supply chain.
ABSOLUTELY CORRECT !
That's where my savings are invested, earning reliable interest income, and already have HUGE capital gains.
THIS^^^^^^^
Mrs. Merovingian and I were just saying the same thing. When the SHTF it will be too late to prepare, and we both agreed to re-double our efforts over the next few months to make sure we a as ready as we can be.
Same here Chuck. I have been reading these types of articles for 4+ years now. Yet, here we all are. Still alive, surfing the net, commenting on blogs, etc. This crap will go on for many more years before anyone blinks. Failure is not an option for TPTB, so IT WILL NOT HAPPEN any time soon in my opinion**. This in no way means that I will not continue to prepare for failure, but I expect to be right here next year talking about 'the coming collapse'......
**Disclaimer: my opinion does not count for much and may change at any time with little or no notice.
Charging interest on deposits and creating Trillions in un-payable debt.
How's that supposed to work in the long term again?
"Saving" is -0.5% with 2% inflation?
And it's gone into the cashless black hole forever.
Now you know why Draghi has a big grin on his face.
Its all FREEEEE ! Thanks to me sovereigns and banks don't feel the pinch.
We just keep kicking Principle repayment down the road. We buy cheap oil and sell expensive military toys so that others can blow themelves up (regretfully there is some minor blowback BUT ALSO loads of slaves for our German factory!)
The last man standing economic concept will play out slow. One might think this cannot last very long but it certainly can go on for centuries. Basicaly so long as there is production people are willing to trade for fiat. The CB dont care at all what price they must pay in fiats. Just so long as they can trade fiats for anything. Why would they give a shit?
Good to read that the economy of Germany is booming (NOT!). The country that keeps the EU afloat. When reading mainstream news we read that the VW scandal has nog big impact afterall. I might be wrong, but I think that the authors of these articles have no clue what propagation time (or speed) means. That after a large scandal, that costed a lot of money, it did not hit the fan, does not means it will not do in the not so distand future. I would think that before the summer of 2016 we will going to have a lot of bad news from Germany that relates to the scandal. (Remember that VW slashed their capex by a couple of billions and countries have stopped importing VW's).
Somethimes I think that in case planet Mars (or another planet) would be inhabited by aliens andthey would study us they would scratch behind their (alien) ears and think what are these people on planet Earth doing..
This shit stops when we stop it. We have the ability to do just that. We lack the will. Its a shame.