Decade Of Negative Real Interest Rates: Who Benefited?

Tyler Durden's picture

Submitted by Michael Shedlock via MishTalk.com,

Rudy Havenstein Tweeted an interesting chart earlier today on real negative interest rates.

I recreated the chart below and also share a chart from Doug Short on real median incomes to help put this financial repression by the Fed in proper perspective.

Decade of Negative Real Interest Rates

decade-of-negative-real-interest-rates

The above chart was created by taking the short-term treasury bill rate and subtracting the year-over-year rate of inflation as measured by the CPI.

A massive housing bubble formed in the first period real interest rates were negative. In the current prolonged period of negative rates, bubbles formed in the stock market and bond markets globally.

Outside the US, nearly three quarters of the world’s bond traded at negative interest rates.

Doug Short at Advisor Perspectives updated his series of charts on Median Household Income earlier today.

Median Household Income, Nominal and Real

medium-household-income-2016-11a

Median Household Income Growth

medium-household-income-2016-11b

Doug Short notes: The reality illustrated here is that the real median household income series spent most of the first nine years of the 21st century struggling slightly below its purchasing power at the turn of the century. Real incomes (the blue line) hit an interim peak at a fractional 0.7% in early 2008, far below the nominal illusionary interim peak (as in money illusion) of 27.2% six months later and the latest at 42%, a record high. The real median household income is now at -0.6% from its turn-of-the-century level. In essence, the real recovery from the trough has been frustratingly slow.”

Who Benefited?

  • Bailed out banks
  • Government bodies via property tax hikes, income tax hikes, sales tax hikes and collection
  • Asset holders – The wealthy

The median guy lost. Those at the bottom end got clobbered much harder. Only the top 10% or so fared well.

The primary beneficiary of QE, negative real rates, and inflation was the top 1%.

The Election

Writers still struggle to explain the election of Trump. The above charts explain clearly.

The median guy on the street is fed up by financial repression. Thanks to mainstream media, the “deplorables” are upset at corporations, at globalization, and at the failure of government to hike minimum wages.

Placing Blame Where It Belongs

Thanks to mainsteam media, which parrots the idea that inflation is good, the “deplorables” fail to blame the institution most responsible: the Fed.

Globalization is a good thing. Falling prices are a good thing.

The average guy on the street understands the latter, but not the former. The average economist, brainwashed by years of Keynesian economic training fails to understand anything.

Academia and mainstream media parrot patently false theories on the benefits of inflation and tariffs. Instead of picketing the Fed, the “deplorables” voted for Trump.

Economist Paul Krugman need only look in a mirror to see one of the reasons the “deplorables” voted the way they day. Krugman still fails to understand what happened.

Shortly after the election, Krugman made a confession: Krugman Admits He Is Clueless. That Progress will be Short-Lived

Explaining Trump

Here is a the key chart from Explaining Social Anger, Brexit, Donald Trump in One Chart.

Shrinking Middle Class

Wealth Gap

The above chart from the Wall Street Journal article IMF’s Grim Long-Term U.S. Outlook in Six Charts.

Economic Challenge to Keynesians

Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them.

I have commented on this many times and have been vindicated not only by sound economic theory but also by actual historical examples.

For a synopsis, please see Deflation Bonanza! (And the Fool’s Mission to Stop It).

My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.

There is no answer because history and logic both show that concerns over consumer price deflation are seriously misplaced.

The Fed’s fight against deflation is amazingly counterproductive and the above charts provide ample evidence.

Routine Deflation Harmless

Routine CPI deflation is harmless. The Bank of International Settlements (BIS), did a detailed study and agrees. For details, please see Historical Perspective on CPI Deflations: How Damaging are They?

In their attempts to fight routine consumer price deflation, central bankers create extremely destructive asset bubbles that eventually collapse, setting off what they should fear – asset bubble deflation.

The final irony in this sad saga is Paul Krugman, Who Proposed Fight with Fake Outer Space Aliens to Stimulate the Economy, Now Worried About Quality of Trump’s Spending.

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LawsofPhysics's picture

That's easy.  Anyone who had immediate access to that free money!!!!

Specifically bankers, financiers, and their political puppets!!!!!!!

Off with the motherfucking heads!!!!!

Nothing changes otherwise!!!!

 

bada boom's picture

Don't forget the government monstrosity.  Bigger than ever.

Cognitive Dissonance's picture

Those closest to the cash register benefit the most. Those furthest away........good luck.

bada boom's picture

.... Ford's, Carter's, Reagan's, Bush's, Clinton's, Bush's, Obama's, Tru... 

 

ersatz007's picture

@Richard Chesler:  look at bada boom's reply

I might add Nixon into the mix...otherwise, bada boom is spot on.  While I'm no fan of Obama...he's not the only one to blame for this shit show.

Actually - one probably could go as far back as the early 1900's. 

Sphira's picture

The big monster in the room. The Money Masters.

Are you familiar with that production? Anyone?

Widdle while we work...be a millionaire overnight.

Widdling the country into solvency... simple but not easy.. 

 

http://cs-exhibitions.uni-klu.ac.at/index.php?id=319http://www.mindconta...

 

http://www.mindcontagion.org/banking/hb1694.html

caconhma's picture

People living on a fixed  income  (like pensioners and savers) were destroyed at expense of financial and social parasites.

America has no future without cutting its government expenses by a half.

Amy G. Dala's picture

Savers yes, pensioners no.  Show me the public employee pension that was cut over the last decade, even as their fund returns went in the shitter.  In fact, ZIRP actually helped public employee pensions, allowing bankrupt states and munis to roll over old debt and sell billions in pension obligation bonds.

Mister Trump, correct me if I'm wrong, but public employees gained the right to unionize not under the Wagner Act of 1935, but by EXECUTIVE ORDER under JFK.  Rescind that fucker, let them figure out how to divvy their underfunded pensions, including how to pay back the pension obligation bonds (which nobody voted for, and are backed by state and muni unlimited power to tax.)  Rescind that fucker now.

rmopf2010's picture

Absolutely agree with you. NIRP/ZIRP and QE is the way central bankers in the so called west use to prevent the ponzi welfare/big government from crashing hard, the promises made in the past have no sustainability.

About pensioners one remark that you have not mention in your comment, public pensions are benifiting from NIRP/ZIRP and QE at the expenses and solvabilty of private pensions.

Private pensions funds to stay above the water must have a real interest rate (5~7% on a 10y bond) to keep them solvable.

These policies are going to cause a global civil war.

.

Raffie's picture

Lets see...

I put in $100,000 and with negative interest I pay $1000 per year.

Over 10 years with keeping my $100,000 in the bank I make $50,000 proit.

I see nothing wrong here..

Looks like a win win to me.

Mass sarcasm implied...

VWAndy's picture

 I think we could barter for thier heads and have them delivered like pizza.

ebworthen's picture

Yes, not me!

The Kleptoligarchy doesn't want or need a middle class.

nope-1004's picture

Academia and mainstream media parrot patently false theories on the benefits of inflation and tariffs. Instead of picketing the Fed, the “deplorables” voted for Trump.

+100.  But I still think we should picket the Fed and start hanging them for crimes against humanity.

 

Dr. Engali's picture

"Who Benefited?

  • Bailed out banks
  • Government bodies via property tax hikes, income tax hikes, sales tax hikes and collection
  • Asset holders – The wealthy

The median guy lost. Those at the bottom end got clobbered much harder. Only the top 10% or so fared well.

The primary beneficiary of QE, negative real rates, and inflation was the top 1%."

 

 

This is new information? For Pete's sake, it's been that way since the beginning of the printing press. Why in the fuck do you think the 1% like fiat so much? It's because those closest to the presses benefit the most, and it's infaltion for the rest of us plebes. 

rmopf2010's picture

And welfare state/big government, public sector!

Angry White Guy's picture

I sure as hell could stand to see some deflation on my rent, and housing prices in general.  Don't get me started on food and healthcare.

bada boom's picture

You should of purchased stocks!  /sarcasm

Trucker Glock's picture

Still waiting for equity markets to tank.  Been waiting a long fucking time, and missed out on a lot of gains.  I thought those that kept their 401k in equities were fools.  Turns out I'm the fool.

1777's picture

You are not foolish, just early...

Bill of Rights's picture

Every American in this Country should get a large sum refund..LARGE for the ass fucking these pricks have done over the last 35 years to the citizens.

nope-1004's picture

Been going on for hundreds of years.  I don't want more 0% worthless fiat, I want justice.

What we need is a completely new financial system with the FED members hanging from lamposts as a reminder to everyone the evils of currency debauchery and inflation.

Gold Dog's picture

Today I am self-identifieing as a 1%'er.

Time to pick out a new jet.

Colonel's picture

The fed and the 1% helped Trump even though they were against him, ironic that.

Amy G. Dala's picture

Keynsianism makes no sense whatsoever with fiat currency.  Remember, Keynes lived in the age of the gold standard.

There is a reason price fixing and price collusion is illegal.  If I so much as ask my buddy how he charges for services, this is collusion.  We can be prosecuted.  Yet the FOMC gets together behind closed doors to fix the price of money.  Price fixing is highly illegal, unless it's done by the govt.

And when price fixing doesn't work, usually resulting in perverted and unpredictable outcomes, guess what govt's answer is?

Yup, more price fixing.

Anecdotally: in Oregon, you can't pump your own gas.  On a recent trip, I never saw more than one attendant (i.e. gas pumper and credit card swiper) at any station.  At one station, there were nine cars.  It took 15 minutes to get gas:  five minutes waiting, two minutes pumping, and another eight minutes waiting for gas pumper to remove the nozzle so I could leave.  Cash transactions take even longer.  I imagine the gas pumper makes minimum wage.  They want the minimum wage to go up to $15/hr.  I suppose that will make the gas pumper more productive.   Soon the gas pumper, at $15/hr, will be wearing roller skates.  And a crash helmet too, for L&I purposes.

What a fucking idiocracy.

tricorn teacup's picture

Keynsianism doesn't add up with precious metal currency either.  Even the value of gold fluctuates with supply and demand.  Spending gold from the treasury to "stimulate" the economy can at best pull economic activity forward in time, as it dilutes the value of gold in circulation.

VWAndy's picture

 You know who else got reamed hard. Pension plans were all turned into zombies.

    One way or the other we are going to have to go thru Bartertown. The true values of everything measured in fiats has been lost. In order to find them again they will need to all be measured against human labor. Only bartering will do this.

  A switchover to a real value coin of any flavor. Cannot take place without known correct values to base all trade on. I like an energies valued coin simply because it can be measured correctly and easily. It has one other great thing going for it. We can all produce our own energy and by doing so keep anyone from ever being able to run this fiat magic game again.

  Unlike the krugster and his ilks BS this can be backed up with reason and basic logic. It would also put producers in the drivers seat where they should have always been.The only thing the krugster ever produced was bullshit. In Bartertown we might get to watch him eat his cat.

  The stall and barter should in my opinion leave the bankers as bagholders for every last bit of debt they issued. At the same time limit government to a realistic form. None of these current forms of government could exsist without the fiat magic. Not one.

  Imagine all society built around real fixed values instead of faith and lots of force.

VWAndy's picture

 One other thing the real inflation rate is prolly a tad higher then the official #s.

VWAndy's picture

 There is also a rather large amount of debt out there not being counted on any official ledgers but its out there.

daedon's picture

How many Trillions worth of bonds are held by pension funds just waiting to be harvested ?

VWAndy's picture

 And all those black budgets too.

Arnold's picture

My $2.35 left in the checking at the end of the month.

VWAndy's picture

 I pay my sons allowence in tools.

Disgruntled Goat's picture

"Globalization is a good thing"

Fuck you Mish, I never could fucking stand you and your simpering commentary.

Negative real rates were also very good for paid newsletter writers like you, who profited handsomely by talking your book.

Disgruntled Goat's picture

Oh.... and what about people like my 86 year old  mom. She "has assets".... assets that she gets a 0.19% return on.... but I guess she "benefited" by not losing half her net worth...

Why is this guy being published on this site? He has always been nothing more than controlled opposition for the elite

tricorn teacup's picture

Negative real interest rates benefit borrowers and debtors.  Who's been borrowing like it's Mad Money over the last 8 years?