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Guest Post: Will Bond Investors And Savers Have To Hold Forced Government Loans At Some Point In The Future?

Tyler Durden's picture





 

Submitted by Gu?nter Leitold

Will bond investors and savers have to hold forced government loans at some point in the future?

Numerous governments of developed countries are likely to fail when trying to liquidate their large debt burdens in an orderly way. Japan, for example, steadily widened its debt load over the past 22 years and thereby constructed the largest bankruptcy waiting to happen. Since 1990, new borrowings and interest payments were the biggest contributors to build up the Japanese state of pre-insolvency. While Japanese government bond yields have been around 2.6% p.a. on average, these yields were still 2% above nominal GDP growth of just 0.6%.

The chance of not being able to de-leverage is dangerously high when the free market requires a nation to pay interest rates significantly above its nominal growth rate. The nations of the European periphery, Portugal, Spain, Italy and Ireland currently overpay nominal growth rates in the long term bond market by 11,01%, 5.84%, 5.09% and 4.38% respectively. They are directly heading towards the need of a restructuring while Greece has a good chance of requiring a second one.

Nominal interest rates set around 1% - 2% below nominal growth rates for a significant period of time would be needed to help these countries to leave the debt build-up course behind. This change of interest rates would erase mark-to-market losses on sovereign bond positions for the semi-solvent banking sector, but it would also wipe out the carry and leave them without earning power on this part of the balance sheet. However, some of them would still need to restructure. Keeping the high government interest rates in place will lead to some spectacular restructurings in the future.

I assume if central planners decide to circumvent the already manipulated bond market and enforce much lower interest rates by implementing forced loans, there would be a big uproar for some time in the market. However, the negative wealth effect on the private sector would be more foreseeable and stretched out over a longer period of time. This definitely would decrease uncertainty. In my opinion, this measure would actually help to break through the downward spiral and avoid the much more devastating course towards a restructuring event with its negative side effects.

Everyone and their dog realizes that suffering the whole pain of a restructuring event at once is a bad alternative compared to spreading the pain over a longer period of time and spreading it in an orderly and less uncertain way.

It seems that the free market does not provide this option without harsh government intervention. The free market tends towards capital flight, wider risk spreads and thereby makes a restructuring event at the end of the road more likely. Greece for that matter has been half-solved at best and therefore has a good chance of being back on the brink soon.

I believe that at some point, we may see the implementation of a temporary regime which includes forced government loans for domestic private sector participants paired with strict capital controls for as long as the de-leveraging is going on.

This scenario however assumes a discontinuation of the belief or hope, that the private sector of stronger borrower nations (like Germany) will be able and/or willing to help to consume a private sector wealth haircut for other nations or the belief or hope that debt problems will somehow disappear, which never happened so far as I know.

At the moment politicians of countries with a tense financial situation might not like the idea of implementing such a regime now. Even if they agree in doing these measures, they may want to change the name from forced or compulsory loans (which have been used in the past to finance wars) to something nicer like "solidarity bonds".

Even Japan and/or the US may have to change to such a regime as soon as the marginal buyer of their bonds turns to a seller and/or some capital flight starts. This could occur after further rating downgrades paired with decreasing effects of their continued money printing efforts.

A regime like this would make sense until certain de-leveraging targets are achieved. Such targets could be expressed as debt to GDP and/or interest expense to total expenses. The targets should certainly include the frequently hidden government debt components like local government and agency debt, unfunded debt components, guarantees etc. Contrariwise the subtraction of certain eligible assets like cash, marketable securities, etc. should be permitted.

To guarantee that such financial repressions are not circumvented by the private sector too easily, these measures would have to be paired with temporary capital controls. Every domestic private sector participant (financial institutions, corporations, non-profit organisations, etc.) would have to subscribe to these "solidarity bonds" on a pro-rata basis related to the financial wealth (including gold and some other "inflation hedged" assets). Special wealth tax treatment might be imposed for those which fail to be in compliance with their subscription in the forced bond exchange.

The implementation may be easiest achieved by a tough regulation of all domestic financial institutions (banks, insurance companies, fund managers, pension funds, etc.). Banks would then f.i. have to hold a certain share of their client deposits in such bonds and accordingly pay a slightly reduced rate on customer deposits.

It is hard to predict which government policies are likely to be imposed in the future. Politicians, who are already unable to cope with the situation, may at first find it hard to take that route. However, from today’s point of view the sovereign debt situation will further deteriorate which increases the likelihood of a restructuring event. Harsh measures to exit the downward spiral and growing reluctance to pay high free market rates will make forced loans a more likely scenario.

This option may also be less damaging to politicians compared to tax increases, austerity measures, direct wealth taxes, more bail-outs and money printing. All this measures will continue to show that they have little effect on the construction of a successful de-leveraging process, while in the absence of significant growth, low cost funding is needed. If growth picks up, yields would automatically turn from negative to positive levels.

I believe that people will find many reasons why this can not be done. Critics will point out that this government funding scheme will be a direct toll on private wealth in order to liquidate government debt. There may be some unintended consequences like some people wanting to take all their money under the mattress, or an increase in non- financial asset purchases. However, the net effect would be significantly less damaging than the sudden stop of funding when a restructuring becomes expected combined with a massive uncertainly when a de-leveraging episode is needed but not executed.

Personally, I would hate to see some 30% of my financial assets directly or indirectly invested in such negative yielding bonds for about 7 to 10 years, but it may be worth paying this price in order to avoid the other devastating road some high income nations are currently on. The net present value of the other 70% of the portfolio would help to compensate for that.

 


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Wed, 04/25/2012 - 15:44 | Link to Comment LawsofPhysics
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WTF?!  The future is now for most 401k fools.

Wed, 04/25/2012 - 15:53 | Link to Comment SheepDog-One
SheepDog-One's picture

401K's are now 40.1K's at best. These people have nothing to do but sit around all day coming up with these economic future theories, bunch of nonsense. Theyve monetized the debt, and next will be sudden plunge into WW3, thats all. Same as it ever was, history repeats again.

You know we're fucked when you see this kind of drivel spewed about. 'Make me take bad govt loans"? How about 'go fuck yaself'!

Wed, 04/25/2012 - 15:53 | Link to Comment SHEEPFUKKER
SHEEPFUKKER's picture

I'll buy the worthless pieces of paper only if toilet paper costs skyrocket. 

Wed, 04/25/2012 - 16:15 | Link to Comment dlmaniac
dlmaniac's picture

Everything we heard about Banana Republics will come to this land.

Wed, 04/25/2012 - 16:20 | Link to Comment CH1
CH1's picture

Everything "registered" is under the state's control.

We always really knew that, but denial's a bitch.

Wed, 04/25/2012 - 17:10 | Link to Comment Dr Benway
Dr Benway's picture

"Personally, I would hate to see some 30% of my financial assets directly or indirectly invested in such negative yielding bonds for about 7 to 10 years, but it may be worth paying this price in order to avoid the other devastating road some high income nations are currently on."

 

This has got to be trolling? 

Wed, 04/25/2012 - 17:14 | Link to Comment LowProfile
LowProfile's picture

 

I assume if central planners decide to circumvent the already manipulated bond market and enforce much lower interest rates by implementing forced loans, there would be a big uproar for some time in the market. However, the negative wealth effect on the private sector would be more foreseeable and stretched out over a longer period of time. This definitely would decrease uncertainty. In my opinion, this measure would actually help to break through the downward spiral and avoid the much more devastating course towards a restructuring event with its negative side effects.

So, the cure for ills called by central planning is...

MORE central planning?

I was hoping it WAS trolling, but I don't think so.

Thu, 04/26/2012 - 01:00 | Link to Comment CaptainObvious
CaptainObvious's picture

Nah, I don't think it's trolling...the author actually believes this plan will work.  I guess he never heard of Iceland, which told the bankers to go fuck themselves and is now thriving. 

I can't believe I have to say this again, but the solution to debt is NEVER more debt.

The author of this drivel can lick my sweaty sack.  I'd rather get shot in the ass and recover and get on with my life than spend a decade getting raped up the ass only to get shot at the end of the orgy.

Wed, 04/25/2012 - 21:39 | Link to Comment vocational tainee
vocational tainee's picture

Then circumvention feels like circumsision

Wed, 04/25/2012 - 16:27 | Link to Comment SoCalBusted
SoCalBusted's picture

Already have a wallet full of worthless paper

Wed, 04/25/2012 - 16:15 | Link to Comment anarchitect
anarchitect's picture

The scenario described in the article, and the spin for how it would be sold, is very possible indeed. For that, it deserves a 5. For actually thinking that it's a good idea and justifiable, it deserves a 1. May your chains rattle lightly, Guenter.

Wed, 04/25/2012 - 16:21 | Link to Comment Peter Pan
Peter Pan's picture

I agree. Instead of making taxpayers hand over their funds why don't they force taxpayers to take 1% loans from the FED?

Is Leithold another subsidzed academic or what?

Wed, 04/25/2012 - 22:22 | Link to Comment Imminent Crucible
Imminent Crucible's picture

He's an imbecile: "It seems that the free market does not provide this option without harsh government intervention...Greece for that matter has been half-solved at best and therefore has a good chance of being back on the brink soon."

What a dumbass. "The free market" had absolutely nothing to do with what was forced on Greece. The free market would have enforced a market-clearing default that would have handed all the Douche Banks of Europe the 100% loss they deserved.

Wed, 04/25/2012 - 17:59 | Link to Comment Benjamin Glutton
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In Soviet USSA Bonds buy l------->YOU<--------l

Wed, 04/25/2012 - 17:13 | Link to Comment CrashisOptimistic
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On the day before the US lost its AAA rating, the 10 yr T was 2.58%.

It's now 1.98%  That's a decline of 0.6% nominal.  It's also a capital gain for holders of that paper of 23% in about 8 mos.

Why would you need to force people to take capital gains like that.  There is more of that to come as the rate goes to 1%, then 0.4% and then -0.5%.  

Terrified money has nowhere else to go.  Lots of capital gains yet to come.

Wed, 04/25/2012 - 17:16 | Link to Comment LowProfile
LowProfile's picture

 

Why would you need to force people to take capital gains like that.

...Because the real return after inflation is negative?!

DERP

Wed, 04/25/2012 - 18:19 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

I see no quoted inflation number of 25%.  You can imagine it and claim conspiracy here and there, but I have seen no 25% rent increases or gasoline increases.

That capital gain looks like a real return of 20ish% in 8 months.  I see no reason to dislike that.

Wed, 04/25/2012 - 18:40 | Link to Comment LowProfile
LowProfile's picture

...And because it's that way now, according to the "Brianyi Ruler" indicator, it will always be such.  I see.

DERP

Wed, 04/25/2012 - 17:54 | Link to Comment Id fight Gandhi
Id fight Gandhi's picture

Ww3 makes all the debt go away. Forced austerity after this orgy of debt and spending.

Wed, 04/25/2012 - 19:42 | Link to Comment DosZap
DosZap's picture

Those with 401's and IRA's, and other savings vehicles in Banks, could wake up tommorrow and already be DONE.

Even a portion of your metals investments?.

This sounds like Greece, pissed at Germany for not willingly subsidizing their non chalant lifestyles, and month long vacations, and 25 hour work weeks.

IOW's, DO NOT expect me to suffer even MORE, to keep your (.goobs) nuts out of the fire.( you caused it, you fix it).

This is just ONE more way of continuing to kick the can, OUR cans,down the road.

IF, and a HUMONGOUS IF, they were to do this, and put a real budget/plan together, and stick to it,then we might be more willing to go along, rather than run the risk of the Deflation/Hyper Inflation monster.

But due to the past experinces with their inability to RUN a stable .goob, and under the rules of our Founding docs............with the Rule of Laws.

I say, Go piss up a rope.

Wed, 04/25/2012 - 15:45 | Link to Comment Hondo
Hondo's picture

I don't find this happening without gunfire.........

Wed, 04/25/2012 - 15:49 | Link to Comment cossack55
cossack55's picture

Agreed. Historically, the gunfire route works everytime its tried.  Whats that old yarn about the "Tree of Liberty"?

Wed, 04/25/2012 - 15:58 | Link to Comment Vagabond
Vagabond's picture

When assholes in government are pissing on it, it's time to spill some blood?

Wed, 04/25/2012 - 16:01 | Link to Comment LawsofPhysics
LawsofPhysics's picture

It already is.  Only when SNAP is ended do you get the gunfire.  My god man, wake up and read up on "financial repression."

Wed, 04/25/2012 - 16:59 | Link to Comment MachoMan
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Is that gunfire likely more directed at anyone with anything to steal or governmental actors?

Wed, 04/25/2012 - 17:07 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Therein lays the rub.  

Wed, 04/25/2012 - 19:43 | Link to Comment itstippy
itstippy's picture

Both. 

One exuberant crowd is in the public square cheering as the big hollow statue of the (formerly) Great Leader is pulled down.  That's the crowd the "embedded" journalists get to video and show over and over and over again.

Meanwhile, a few blocks away, an even bigger crazed mob is looting the National Museum right down to the light fixtures.  That part of the revolution is not televised. 

Wed, 04/25/2012 - 17:10 | Link to Comment Born-Again Bankster
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401-AKs?

Wed, 04/25/2012 - 17:41 | Link to Comment mrdenis
mrdenis's picture

Did you ever believe we would be where we are today without gunfire ?

Wed, 04/25/2012 - 18:02 | Link to Comment 1eyedman
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yes, the type of scenario he describes usually occurs (a la WW2) in time of total war; total state control; "totalitarianism to save democracy' type of scenario

Wed, 04/25/2012 - 15:49 | Link to Comment thetruthseeker
thetruthseeker's picture

WTF is right.  This guy needs to go over to the New York Times op-ed page with this crap.  Is this website still Zero Hedge?  Or did I accidentally navigate to some statist blogosphere site?

Wed, 04/25/2012 - 17:23 | Link to Comment Reptil
Reptil's picture

Disagree, it IS crap, but is put here intentionally to provoce a debate.

It is crap because there's no willingness to break out of the negative spiral right now: That willingness is presented as a given, but exactly the opposite is the case. I don't buy the "agony stretched out over longer period is better" line, since it is a downward spiral, and flattening it a bit will not magically turn it upward. THERE NEEDS TO BE SETTLEMENT. (and I don't mean through the BIS but that's clear i hope.)

With "mandatory loans" in place, which are not contracts but outright feudalism, there's even LESS incentive for those on the recieving end of the scale (which is hopelessly out of balance), to take a hit, and allow the much needed insolvencies. Much needed because they result in bad investments, and bad investments on such a grand scale is hindering the survival of the human race (and everything else with it's back to the sun). I don't think I'm excaggerating, since destructive planning is encouraged. One part of the people will welcome it as "culling of the herd", or "destruction is needed to make place for renewed spirit and  but that's an incorrect assesment. "Doing God's Work" my arse! Bad investments will not lead to better ones, when there's less people left standing to divide the spoils, and worse; these destructions are now FINAL, and will result in LESS for the ones left standing (or NOTHING). The fourth turning will be a last big turning. Species die out, simply wither away, after the brilliance of what made them rise above the foodchain they were once part of, has disappeared. I'm saying that brilliance is being quelled, stangled, with each further corruption into chaos. The "magic trick" with interest rates does not change the issue that there's no real growth, both in physical quantities of production, in quality (the bogus story of "progress" when monopolies nip competing technologies in the bud), or spirituality (if the cutthroats have killed of all creative souls, who will keep them from turning onto each other? they are by defitnition morally corrupt and bankrupt)

Let's take this a little further is you don't mind the slightly vague wording? This return to models of feodal society but then industrialised (sort of a polluted dark middle ages) is transgressing beyond the (IMHO workable) model of libertarianism, it strikes at the nucleus of what we are. And no, we're not a species that revolves just around the paradigm of "the strong praying on the weak in terms of the corrupt vs. gullable consumers", that's too one dimensional IMO.

Look here (skip to 13 minutes in) https://www.youtube.com/watch?v=KYW5Lxm_Kjs Excellent short but sharp observation by Michael Hudson.

 

Thu, 04/26/2012 - 03:18 | Link to Comment connda
connda's picture

What's there to debate.  The OP is a freaking idiot.

Wed, 04/25/2012 - 15:50 | Link to Comment Seize Mars
Seize Mars's picture

Uck-fay Is-thay

Wed, 04/25/2012 - 15:52 | Link to Comment Robslob
Robslob's picture

 

 

In the 1930-1960 era the Government could hava absolutley beyond a shadow of a doubt confiscated retirement through the forced aquisitions of Government debt as a Patriotic initiative...now...not so much....

Wed, 04/25/2012 - 15:55 | Link to Comment SheepDog-One
SheepDog-One's picture

Yea very few left still buying the patriotic 'take it up the ass for Uncle Sam, heres a free flag on a stick' crapola anymore.

Thu, 04/26/2012 - 03:20 | Link to Comment connda
connda's picture

Yeah, I'd love to see a "War Bonds" drive in this day and age.  But then again, considering that the 80% (sheeple) take MSM as the "Word of God", who knows!

Wed, 04/25/2012 - 15:56 | Link to Comment TwoJacks
TwoJacks's picture

no such thing as IRAs or 401Ks back then.  companies only offered pensions or nothing, so nothing to grab ahold of

Wed, 04/25/2012 - 16:28 | Link to Comment Errol
Errol's picture

Also, in the 1930-1960 period the production of actual, real world goods was increasing (due to increasing actual, real oil production), so one could theoretically pay off a debt load.  However, the end of parabolic growth in oil production means the end of parabolic production growth of economies, period.  The instability and distress we're seeing in the financial world is just the very early stages of the adjustment to a continuous contraction that is being imposed on the human economy by the limits of a finite planet.

This article is just another proposal to loot any remaining assets of value to prop up the wealth conveyor for a bit longer.

Wed, 04/25/2012 - 17:42 | Link to Comment Sophist Economicus
Sophist Economicus's picture

From the late 1950s to 1980, in the US, you actually HAD financial repression!    Passbook savings interest rates were held down at banks via legislation (negative real interest rates), the Treasury capped the 'natural rate of interest' on bonds (again negative interest rates), banks were forced to offer no interest rate on checking accounts, financial institutions were forced to hold government paper via reserve laws, silver was eliminated from circulation and Kennedy made holding gold outside of the US illegal.

That is how the US reduced the Treasury debt from nosebleed levels on the back of savers.

 

Same as it ever was

Wed, 04/25/2012 - 15:55 | Link to Comment NotApplicable
NotApplicable's picture

Thanks to Benron and Greenspin we already are forced to hold that trash. As for the other two categories, "investors" and "savers," well, sorry, those classes are extinct, being reliant upon a failing standard of measure (or at the very least, you need to add the descriptor "nominal" to the terms).

One can opine upon whether or not "it can happen," but it's completely MOOT at this stage.

Wed, 04/25/2012 - 15:55 | Link to Comment l1b3rty
l1b3rty's picture

the Nationalization of All Life!!!

http://silvervigilante.com

Wed, 04/25/2012 - 15:57 | Link to Comment SDRII
SDRII's picture

Retroactive War Bonds? Swapping real dilution for real dilution. Has to be accretive to consumption, no

Wed, 04/25/2012 - 16:16 | Link to Comment El Viejo
El Viejo's picture

Call them War Baby Bonds.

Wed, 04/25/2012 - 16:10 | Link to Comment SheepDog-One
SheepDog-One's picture

OH but dont worry though...its all good confirmed smooth sailing 'till after the elections'....yea sure.

Wed, 04/25/2012 - 15:58 | Link to Comment WTF_247
WTF_247's picture

How do you "force" people/entities to take loans they do not want?  Since there is interest on debt, you are essentially stealing from them because interest has to be paid even if they do not touch any of the money.  I cannot imagine there would not be massive blowback to such a scheme.

I guess you could use TARP as a blueprint to force the loans to banks, but outside that realm there is no way you can force a private fund, company or person to "borrow" money from the government they do not need or want.  If you think that would go over well then I have a bridge to sell you.  Basically the only thing that would happen is massive fraud.  

If the government wants to force me to "borrow" $1 billion, I am more than happy to do so.  I will spend like there is no tomorrow and then declare bankruptcy when the debt is due.  It is their stupidity for making me take the money that will lead to their losses.

Wed, 04/25/2012 - 16:02 | Link to Comment SheepDog-One
SheepDog-One's picture

They stuffed the bankrupt banks full of fake money, but no one would borrow, or could borrow....so now the bankster overlords are super pissed and will MAKE you take a fuckin loan, dammit, and youll LIKE it! And PAY ME INTEREST, motherfuckers!! Its the only way us central bankers know how to survive, fractional reserve lending, and if you wont cooperate then we'll FORCE you!

Wed, 04/25/2012 - 16:10 | Link to Comment SDRII
SDRII's picture

reverse reverse accreting mortgage. that is one way to deal with negative equity

Wed, 04/25/2012 - 16:03 | Link to Comment SDRII
SDRII's picture

You obviously didnt follow the pink editorial page and one William Buiter who now doubles as chief economist at Citi. He is a strong advocate of forced march negative rates. Why shouldn't there be negative rates when there are positive rates, he muses? Even the genius factory at Harvard arrived at the idea of having a random lottery of cusip serial numbers called for expiration monthly. You work and we decide if you save. 6 Ipads in every pot. Buy stock in Mountain  House.

Wed, 04/25/2012 - 16:05 | Link to Comment SDRII
SDRII's picture

Bo Xilai Clan Links Included Citigroup Hiring of Elder Son

http://www.bloomberg.com/news/2012-04-22/bo-xilai-clan-links-included-ci...

 

Wed, 04/25/2012 - 16:01 | Link to Comment mrdenis
mrdenis's picture

"I'll give you my money when you pry it from my cold, dead hands!"

Wed, 04/25/2012 - 16:25 | Link to Comment Mercury
Mercury's picture

-->Every domestic private sector participant (financial institutions, corporations, non-profit organisations, etc.) would have to subscribe to these "solidarity bonds" on a pro-rata basis related to the financial wealth (including gold and some other "inflation hedged" assets).

I think you're overlooking one of the major advatages of owning actual, physical gold.

-->Personally, I would hate to see some 30% of my financial assets directly or indirectly invested in such negative yielding bonds for about 7 to 10 years, but it may be worth paying this price in order to avoid the other devastating road some high income nations are currently on.

Please.  "Give us your money or the world will end" isn't a magic incantation or a universal truism it's something Hank Paulson said to Nancy Pelosi when he was trying to save face.

Public sector employees are all that stand between us and Armageddon? Really? 

I think I'd like to call that bluff actually.

Wed, 04/25/2012 - 16:03 | Link to Comment Lazarus Long
Lazarus Long's picture

If obama care is found to be legal, everthing and much more than what is written above will be done. Run from the US nowb

Wed, 04/25/2012 - 16:09 | Link to Comment SheepDog-One
SheepDog-One's picture

To where? A South Pacific island or something?

Wed, 04/25/2012 - 16:04 | Link to Comment SheepDog-One
SheepDog-One's picture

You'll TAKE our 'solidarity bonds', or we will KILL you! 

Wed, 04/25/2012 - 16:17 | Link to Comment El Viejo
El Viejo's picture

(Tax you to death)

Wed, 04/25/2012 - 16:06 | Link to Comment TheGardener
TheGardener's picture

With that undertone of a regulator, is this the Bundesbank
writing on ZH ?

Wed, 04/25/2012 - 16:08 | Link to Comment SheepDog-One
SheepDog-One's picture

Could be. I dont know of any legitimate persons name with a question mark in it.

Wed, 04/25/2012 - 16:09 | Link to Comment Snakeeyes
Snakeeyes's picture

Of course. Bernanke doesn't address REAL employment issues, just the silly unemployment rate.

No Surprise From Fed - "Peace in Our Time" Speech (Bernanke Channels Neville Chamberlain)

http://confoundedinterest.wordpress.com/2012/04/25/no-surprise-from-fed-...

Wed, 04/25/2012 - 16:12 | Link to Comment SheepDog-One
SheepDog-One's picture

'Like in Japan, for example'...aw blow it out your ass bank regulator you go move to Japan if its so great.

Wed, 04/25/2012 - 16:12 | Link to Comment skipjack
skipjack's picture

"solidarity" bonds ?  Solidarity...by force ?

 

More Orwellian nonsense from an overprivileged asshole.

 

The day the Feral Government does this is the day they have overtly taken us all as debt slaves to the State.  At that point it's stand up or die.

 

 

Wed, 04/25/2012 - 16:13 | Link to Comment The_Euro_Sucks
The_Euro_Sucks's picture

Refreshing to see some MSM propaganda her at ZH to disect. Let me have a (partial) go at it. Bet most ZH'er dont need it but its fun how easy the propaganda is to disbunk nowadays. Waht I find amazing is that people still believe this kind of crap.

''Everyone and their dog realizes that suffering the whole pain of a restructuring event at once is a bad alternative compared to spreading the pain over a longer period of time and spreading it in an orderly and less uncertain way.''

You fucking IMF pony. Look at Iceland, they did their debt forgiveness ritual that was in much of histories time a social norm. Back then they even understood shit like this is unsustainable. Or u say that Japan and Southern America, Africa etc are great examples of spreading the pain over longer periods of time?Especially with that IMF worldbank ''support to adjust'' they gotten?

 

''The free market tends towards capital flight, wider risk spreads and thereby makes a restructuring event at the end of the road more likely.''

Indeed, crash and burn. That means ''investors'' loosing all they got as it should. Damn, this crappy writer still dont know that the human collective is like a herd? Let them, a few years later REAL wealth is created and the whole cycle can start again. Unless some bad ass politicians sell the soul of the prudent to the IMF's et. Then the misery drags on for decades or longer.

 

''Even if they agree in doing these measures, they may want to change the name from forced or compulsory loans (which have been used in the past to finance wars) to something nicer like "solidarity bonds".''

I suggest, rape free people in the ass loans. Make the slogan, we all love (debt) slavery!

 

''A regime like this would make sense until certain de-leveraging targets are achieved''

Care to explain who that would be? Agenda 22 of the UN maybe? (ofc while the ''leaders from there'' living in luxory beyond imagination for shrimp like me.

 

''these measures would have to be paired with temporary capital controls. Every domestic private sector participant (financial institutions, corporations, non-profit organisations, etc.) would have to subscribe to these "solidarity bonds"''

One just gave to love facism, sorry corporatism. As Musolini said, a way nicer name for it.

 

''If growth picks up, yields would automatically turn from negative to positive levels.''

Ofcourse we take the printers word for it

 

''I would hate to see some 30% of my financial assets directly or indirectly invested in such negative yielding bonds for about 7 to 10 years, but it may be worth paying this price in order to avoid the other devastating road some high income nations are currently on''

Well go ahead, I dare u, double dare u that u got all out of the country by now.

 

 

Wed, 04/25/2012 - 16:17 | Link to Comment SDRII
Wed, 04/25/2012 - 19:08 | Link to Comment Renfield
Renfield's picture

Thanks, SDRII. I was looking around trying to find out who this low-level housenigga fascist-tool is. Thank Christ he isn't from a continent near me. Poor Europe tho.

Anyone doing business with this bank or involved in a transaction to which this bank is a party, watch your back. They're the ones who hired Gunter Leitold and for whom he's worked for lo these 11 years. So I can only assume they approve and endorse government theft of private funds:

"Capital Bank-Grawe Gruppe AG provides private investment banking products and services to medium-sized enterprises and institutional investors in Austria. It offers corporate investment, leverage finance, and corporate finance services. The company also provides wealth management; and investment banking services that encompass financial advisory, equity market, and financing services, as well as offers investment advice, discretionary asset management, and insurance broking services. Capital Bank-Grawe Gruppe AG was formerly known as RBB Bank AG and changed its name to Capital Bank-Grawe Gruppe AG in 2001. The company was founded in 1922 and is based in Graz, Austria. It has branches in Salzburg and Vienna. Capital Bank-Grawe Gruppe AG operates as a subsidiary of Grazer Wechselseitige Versicherung Aktiengesellschaft."

Maybe Leitold is one of those sociopaths that certain banks have been screening for when hiring. You know, to improve their competitiveness, or something.

Wed, 04/25/2012 - 16:40 | Link to Comment TheGardener
TheGardener's picture

This Gruntler guy is just trying to explain politely what is already happening in the EUdSSR.

Wed, 04/25/2012 - 16:14 | Link to Comment jonan
jonan's picture

begin the suffering now! i'm almost 30 and i'd like some semblance of stability without interventionism by the time i'm in my late 40's...

this guy, spread the suffering over a longer period...fuck you man...

Wed, 04/25/2012 - 16:18 | Link to Comment The Alarmist
The Alarmist's picture

This would be easy to pull off. Your employer's pension fund would be told to invest only in the "highest-quality" bonds or else face stricter risk-based minimum funding requirements. Your 401k and IRA? The list of approved investments will shrink dramatically, and in fact it might be decreed that these are too risky for you and that these must now be invested solely in the "highest-quality" bonds or else subject to a risk-excise for the added risk your retirement savings plan poses to the Social Security system. The view would be that this money was never really yours because it had not yet been taxed and that a more prudent body would need to oversee stewardship of these savings on your behalf until they finally flow to you (at which time they will be taxed).

Wed, 04/25/2012 - 16:19 | Link to Comment adr
adr's picture

What if your company doesn't offer a pension, or you decide not to invest in a 401k?

Or are you advocating forced investment contibutions?

AH HA!!!! Forced 8% in income of every working American to directly go to the purchase of Apple and Priceline stock!!!!!!

Wed, 04/25/2012 - 16:37 | Link to Comment The Alarmist
The Alarmist's picture

You laugh, but the UK is already implementing "auto-enrolment" for personal retirement saving from wages. It is mandatory for employers to put the workers into it. People can opt out, but it must be an affirmative choice after the auto-enrolment. The cynical assumption is that most people will be too distracted to bother, and in any event the legislation requires a renewed auto-enrolment in a couple year's time even if you do opt-out.

Wed, 04/25/2012 - 19:58 | Link to Comment DosZap
DosZap's picture

Your 401k and IRA? The list of approved investments will shrink dramatically, and in fact it might be decreed that these are too risky for you and that these must now be invested solely in the "highest-quality" bonds or else subject to a risk-excise for the added risk your retirement savings plan poses to the Social Security system.

 

Already the morons on the hill are discussing TAXING 401k's on the FRONTside,thus making them of no value to you or I at all.

What employer would want to get the FULL ASS monte on their fat paychecks BEFORE they were in a plan?.( Tax deferred is the reason for even having them!!!!).

There goes one more example of why some animals eat their YOUNG.

Could not believe this as I read they were  EVEN contemplating it...............showed me the level of total and utterdeseration of the hole they have dug for us.

Wed, 04/25/2012 - 16:15 | Link to Comment adr
adr's picture

Umkay Mr. Mackey.

So prolonged pain over your entire life and that of your children and grandchildren and their childrens children, OR a lot of pain now and thre streets running red with the blood of bankers followed by prosperity and feeling good.

I'll take the pain now.

I bet the author has never met a person living with chronic pain. Many of those people would rather cut their leg off and deal with that intense pain in the hope the daily agony will end than live with the pain.

The problem in our society is that the 1% hasn't felt real pain in generations.

Wed, 04/25/2012 - 17:03 | Link to Comment TheGardener
TheGardener's picture

akr, prolonged pain over you entire life is commonly known as a compromise and there are specialists administering that
pain on you. Think of politicians , banksters and of using a loan for early consumption.

To compromise is accepting, in order to gain a small short term advantage , a long term big disadvantage.

Wed, 04/25/2012 - 16:16 | Link to Comment SDRII
SDRII's picture

Russian loans for share scheme redux

 

 

Wed, 04/25/2012 - 16:17 | Link to Comment mind_imminst
mind_imminst's picture

Solidatiry bonds/loans...for whom? Not for the more than 50% of the U.S. that lives off of government payments of some sort. I doubt that the minority who are getting squeezed to support the corrupt system right now will go for this, much less will they be able to pay for even MORE support of the majority (through government debt paydown) who require government payments to survive.

I would much rather be in solidarity to take a restructuring. "It is going to suck, we all know it, but we are all in it together" - kind-of situation.

With the solidarity bonds/loans, a small productive segment of the population becomes even more like slaves. How long do you think these people will be willing to get screwed? Not long, I venture.

Wed, 04/25/2012 - 16:26 | Link to Comment sessinpo
sessinpo's picture

Hold government loans? As opposed to what, back them by force through taxation as we do today?

Wed, 04/25/2012 - 16:38 | Link to Comment The Alarmist
The Alarmist's picture

Consider it to be a kinder, gentler form of Communism ... Communism 2.0

Wed, 04/25/2012 - 16:30 | Link to Comment ebworthen
ebworthen's picture

Money is already held hostage in IRA's and 401K's.

Fees, crappy returns, you have to get old to get it; and when you do it is taxed out the ass (even though you "invested" in the country with money that had already been taxed).

"Hey, we crashed the economy and you lost your job, thanks so much for paying 30% tax on taking it out to survive.  We really know the game, don't we? *chortle*, *snort*."

Just wait, 39% tax on withdrawals coming even if you are over 59-1/2 years old.  Confiscation by another name is already a part of the game.

Wed, 04/25/2012 - 16:32 | Link to Comment SimpleSimon
SimpleSimon's picture

Until recently retirement accounts in Canada could not hold more than 30% of assets in non-Canadian stock.

Wed, 04/25/2012 - 16:51 | Link to Comment sschu
sschu's picture

Personally, I would hate to see some 30% of my financial assets directly or indirectly invested in such negative yielding bonds for about 7 to 10 years, but it may be worth paying this price in order to avoid the other devastating road some high income nations are currently on.

Who really believes that politicians will fix the problem, bailouts, increased taxes, taking your 401K, inflation, whatever, these will not fix the problem.  We can already hear it, just give us a little bit more, we promise to get our fiscal house in order this time.  Give more smack to the heroin addict. 

Really?  ZH, why would you post such nonsense?

sschu

Wed, 04/25/2012 - 16:53 | Link to Comment pan
pan's picture

Minimize your 401K contributions bitchez!

Wed, 04/25/2012 - 17:03 | Link to Comment Quantitative_Ap...
Quantitative_Appeasing's picture

How about we make a Solidarity fund for nails, a Solidarity Hammer and some Solidarity Crosses...

It would be a beautiful thing to see a line of Banksters above the reflecting pool.

 

 

Wed, 04/25/2012 - 17:12 | Link to Comment MiniCooper
MiniCooper's picture

I have long beleived that force dinvestment in bonds will happen via pension funds.

 

In the UK, there is a big liability mismatch in pension funds and as people have gotten older many coporate pension funds have deficits. The UK Govt curently guarantees corporate pension funds will pay out 90% of promised benefits.

A neat way for Govt to extricate itself from this pesnion guarantee and also get its own debt funded would be to force pension funds to do full liability matching by buying Govt bonds. Hey presto! The Bank of England would suddenly be able to sell all its UK Govt bond holdings that it acumulated under QE to corporate pension funds. Those pension funds would be forced to also buy more debt issued by Govt in future.

Wed, 04/25/2012 - 17:38 | Link to Comment the grateful un...
the grateful unemployed's picture

the housing bubble was a tax on private wealth to pay for government debt, (a raid on equity)

it was Machievelli who first posted the notion of private debt held for the public good. and they will come after you, (and your little dog too) to get what's left of your equity so they can hand it out to the people who shop with food stamps at wal mart. the image of our central bank dropping cash out of helicopters conjures up what political policy? -ism??

and in the future owning anything will be considered vulgar. i suppose that's why eating and travelling are the two biggest consumer growth industries. the media helps change our mind about these things, so that we will gladly surrender what wealth (autonomy) we have, this includes national treasure, resources, etc. USG may well walk away from all its land and property, eventually. bernanke can throw the deeds out of a helicopter too.

so you can homestead a plot in what was yellowstone park for instance and even corporations will divest themselves of assets, causing their book value (a soon to be irrelevant measure of company value) to drop to zero, but what's the book value on APPL relative to earnings?

 

Wed, 04/25/2012 - 17:41 | Link to Comment Money_for_Nothing
Money_for_Nothing's picture

The post is stating the plan. The plan won't work. Trade creates all the empire building wealth. Trade is bad now and getting worse. Either the US starts up manufactoring again or reverts to agrarian society.

Wed, 04/25/2012 - 17:44 | Link to Comment Money_for_Nothing
Money_for_Nothing's picture

Sorry, Misspelled manufaturing,

Wed, 04/25/2012 - 18:46 | Link to Comment LowProfile
LowProfile's picture

You can edit a post until someone comments on it.

Wed, 04/25/2012 - 17:44 | Link to Comment mrdenis
mrdenis's picture

Wait we already have forced zero return saving ....every hear of Social Security ?

Wed, 04/25/2012 - 17:46 | Link to Comment Money_for_Nothing
Money_for_Nothing's picture

manufacturing,manufacturing,manufacturing

Wed, 04/25/2012 - 18:46 | Link to Comment LowProfile
LowProfile's picture

lol,lol,lol (use spell check, we all need it!).

Wed, 04/25/2012 - 17:52 | Link to Comment PeaBird
PeaBird's picture

This article is absolute garbage and steeped in 'know it all' fantasy...sadly, one should expect all recommendations in this article to be implemented by the world's ineptocracies, who will delude themselves into thinking that all the suggested actions from this article will save the system... when the complete opposite will be true.

Wed, 04/25/2012 - 18:15 | Link to Comment joseywales
joseywales's picture

Ever heard of the 5th Amendment:

"[n]or shall property be taken for public use without just compensation".

It is one thing to keep market rates low and indirectly confiscate wealth via inflation.  It is another thing to take property directly through compelled investment in below market loans to repay public debt.

Wed, 04/25/2012 - 18:18 | Link to Comment DogRockets
DogRockets's picture

Pretty sure the name is Gunter Retard, right?

Wed, 04/25/2012 - 18:54 | Link to Comment Renfield
Renfield's picture

Close enough for now, but some of us will want to make notes for when he goes looking for a job, AFTER this fiat collapse is over.

It will be, one day. :-)

For that time: Gunter Leitold. Of Capital Bank Gruppe AG.

Wed, 04/25/2012 - 18:33 | Link to Comment Marty Rothbard
Marty Rothbard's picture

What is needed, is for the US to default.

Wed, 04/25/2012 - 18:43 | Link to Comment gaoptimize
gaoptimize's picture

I can't believe any liberty-loving person would write such an article and then put it up for scorn on ZH.  If this is a trial balloon of some sort, everyone who saw it picked up their firearms and left it in tatters.  It may come to this, but to many of us, this will be one of the signals to begin capital flight.

Wed, 04/25/2012 - 18:54 | Link to Comment Spigot
Spigot's picture

US.gov has clause that allows them to restructure any US obligation into a 30 yr fixed interest rate bond...at their sole discretion.

Result...complete flight of private capital from anything remotely related to US government obligations.

Wed, 04/25/2012 - 19:34 | Link to Comment Yancey Ward
Yancey Ward's picture

This is coming, like it or not.  I don't like it, but I can see the writing on the wall.  There are already trial balloons being floated by various PTB.  It will take a crisis to scare people into acquiescence, but that is a piece of cake for the politicos.

Wed, 04/25/2012 - 20:01 | Link to Comment DosZap
DosZap's picture

 It will take a crisis to scare people into acquiescence,

At this point they are shooting blanks, NOTHING they can throw at me will cause me to go along with this, or anything close to it............ever.

MOLON LAVE

Wed, 04/25/2012 - 20:30 | Link to Comment agrotera
agrotera's picture

..my dog didn't realize that, i will let her know!

Wed, 04/25/2012 - 20:59 | Link to Comment Renfield
Renfield's picture

Dogs have too much good sense to bother absorbing a plan like this.

It often, but not always, takes a Ph.D. to achieve the necessary cognitive dissonance to embrace personal destruction (financial or otherwise) for the well-being or rescue of some government.

Wed, 04/25/2012 - 21:50 | Link to Comment blueridgeviews
blueridgeviews's picture

Of course! What semblence to a fair and open market is this that we trade?

Wed, 04/25/2012 - 23:01 | Link to Comment q99x2
q99x2's picture

Repudiate the debts. Imprison the banksters and traitors. Re-distribute the Rotheschildes, Rockefellers, Gates, and Bushs stolen wealth. Protest the Bilderberg group in Virgina 2012.

 

Thu, 04/26/2012 - 01:58 | Link to Comment Shazam342
Shazam342's picture

Forced loans? Go fuck yourself!

Thu, 04/26/2012 - 07:57 | Link to Comment roadhazard
roadhazard's picture

Every day it gets stupider in the USSA.

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