Negative Interest Rates Mean Your Government Is Betraying You

Nearly 500 million people now live in countries with official negative interest rate policies, and the United States may be next.

I say “may be” because Janet Yellen is talking out of both sides of her mouth. In one breath, she’s trying to reassure us that she expects “continued” economic growth – and then in the next, she acknowledges that she wouldn’t rule out lowering interest rates to negative territory. Meanwhile it’s left to the public to try to sort out just how bad things are, and it is my job, as always, to help. The fact that none of this is openly discussed in the mainstream media is outrageous. Someone needs to take a two-by-four and smack the people at CNBC and Bloomberg Television and The Wall Street Journal over the head and knock some sense into them.

Negative interest rates policy (NIRP) is not merely some technical monetary policy tool; it is a tactic with profound political and moral consequences that must be exposed as a betrayal of the social compact between governments and citizens.

Seven years of zero interest rates have already severely punished savers; negative interest rates will finish the job by confiscating their capital for the mere privilege of depositing it in a federally licensed banking institution.

Make no mistake. NIRP is a desperate, last-ditch measure, and it couldn’t come at a worse time.

Here’s the deal.

Negative Rates Do Not Generate Growth

A government that can’t provide a positive return on capital is failing.

You might think these overeducated professors in the central banks would see that their policies aren’t working and make adjustments, but they simply keep doubling down on failure. And in their latest leap into the unknown, they are taking rates below zero in Europe and Japan and contemplating doing so in the U.S.

More Central Bank Meddling for No Return

Already global central bankers have cut interest rates 637 times since the financial crisis. They have purchased $12.3 trillion of bonds over the past eight years. What do they have to show for all of this huffing and puffing? Not a whole hell of a lot.

There is more than $8 trillion of government debt yielding less than zero. Economic growth around the world is awful – over the last 26 quarters, the nominal GDP of advanced countries has grown by a mere 11%. The markets are crashing too. The Dow, S&P 500, and Nasdaq are all solidly in the red for the year, and “pop” rallies certainly won’t make any difference. I still expect a Super Crash by the summer, if not before, and I’ll have more for you soon about exactly what that will look like.

Comments claiming that Europe is seeing signs of economic growth as a result of negative interest rates are balderdash. Negative interest rates do not generate growth; they destroy growth because they destroy capital. We are already seeing this across Europe; it will be a sad day if similar policies wash up on American shores.

In fact, the mere entertainment of NIRP is an acknowledgement that monetary policy has failed abysmally. If the economy were in fact as healthy as its apologists maintain, we wouldn’t be hearing about the possibility of the Federal Reserve bringing negative interest rates to our shores. Yet the latest leg down in interest rates and stock and junk bond prices was triggered by just such a discussion. I can’t help thinking back to former PIMCO economist Paul McCulley telling CNBC last year that the Fed should raise rates as a declaration of policy success.

Never have so many Fed sycophants been so profoundly wrong. Rather than declare victory, the Fed continues to misconstrue the two components of its statutory mandate – employment and inflation. The fact that it is taking so long for markets to repudiate this confederacy of dunces is a testament to groupthink and cowardly consensus thinking in the financial world.

One thing is certain: If interest rates go negative in the United States, the stock market is not going up. Any knee-jerk rally will come tumbling down.

Rapidly deteriorating market conditions ensure that negative rates would be particularly disastrous. Right now, I’m tracking two specific indicators that tell me how fragile this “house of cards” really is.

One of them is my favorite asset, which I hope you’ve been buying as eagerly as I have…

I’ll be back tomorrow to show you.

Michael Lewitt

28 Responses to “Negative Interest Rates Mean Your Government Is Betraying You”

  1. Michael, thank you for the newsletter. I like your straight forward, no nonsense style. A question about the Fed and NIRP. Since the Fed is a private for profit entity, where is the advantage for them? How will they ultimately benefit from a policy that seems to spell disaster for everyone else?

  2. Ditto but your're incorrect

    Michael, you have awesome insight into the financial world and I view most of your points to be valid but in the case of negative interest rate…you’re just wrong! First your data from a previous email identifies this isn’t a path the Feds will take anytime soon due to last qtr growth and those big players would never allow the Fed to enact this strategy. Unless you have better data than I, you are mistaken on this one. I agree a crash is coming, not sure on the impact, but in June? Not likely, April – September are predicted to be heavy growth months in industry. If any financial downturn would occur more towards Oct-Nov but given election the “big dogs” would prop-up until after the 1st qtr of 2017 as seen these past few months…from you data. Anyway, anyone reading this has this year to get there $ secured via assets.

    Thank you for the data, but on these two your off 8-10 months.

  3. What we need is for all the central bankers to get together and recall from their Econ 101 that money is supposed to have a time value, realize that ZIRP and NIRP have not worked, and declare that, starting tomorrow, we will all set our discount rates to PLUS 2.5%.

  4. Expansion of debt is the basis of support for real estate and stock markets. At the same time, this expansion undermined savings and bonds. The justification was that there would be sufficient growth to enable the repayment of debt. And further, that inflation would reduce the value of that debt as well. Neither have happened as the Fed anticipated. Negative interest rates are an admission of that failure. Debt, in turn, is an artificial stimulant. It cannot go on indefinitely. And, it has reached levels which cannot be repaid, as costs of government far exceed tax revenues, and there is neither consensus or hope on the political side that would lead to anthing resembling balanced budgets. The fed and political system has justified their positions on projections of economic growth that has not transpired.

  5. Ditto but your're incorrect

    Hmmm…Ditto just submitted a detailed message on how Michael is incorrect regarding negative interest rates. Why did my comments on negative interest rates and the “you’re just wrong” with supporting data get deleted? Because I am correct? Please include my comments in the future for all to view, even if you disagree with my supporting data.

  6. I’m just trying to hang on and grow what I’ve managed to save. I’m into stocks and Forex. Since last July when China devalued it’s currency the market has been the worst to trade. I feel the market is ready for a correction with all the Central Banks adjusting currencies against the dollar. Precious metal’s seem be the answer, what say you.

  7. Ditto, There is a mass of indicators that Michael anchors his June prediction to, but to counter your thought . . .1. last quarter growth .7% which will be adjusted down and re-reported in a month or two, (common over the last number of years), 2. the Fed is the big players and will do what works for them, and 3. as to industry, manufacturing output is at a fundamental low not seen in many many decades and still on a decline curve.

  8. I remember well Jimmy Carter well and his 17% mortgages and his Housing Redevelopment Act and other blunders too. It seemed like the economy was facing a disaster, but much to my surprise, Reagan and Volker arranged a soft landing. What are the chances that the next president might be able to do it also?

  9. One thing is certain: If interest rates go negative in the United States, the stock market is not going up.

    If the economy is as robust as our leaders are telling us, our interest rates would be much higher. I measure the health of our economy by the level of our interest rates. And both stink!

  10. If not asked by one of our brilliant legislators, negative interest rates never would have come up in her latest testimony. I do not want to defend the fed,but it was not the fed that ripped us off during the last recession. As I have written previously, is congress anti American–will they ever do anything. CEO’s of the fortune 500 are not much better. We need a GREAT tax law so that we can bring every job back home!!!

  11. Newcomer to the newsletter and really think it is fantastic.
    I have a question I hope you will address soon.
    How will NIRP affect the high risk derivatives game that
    banks have jammed thenselves into?
    With balance sheets of 2-3 trillion but yet gambling
    52 trillion per bank in derivatives… how does that work
    when NIRP kicks in.

  12. The central bankers f’d up our economies, they were so arrogant to think they could save the world without the need for fiscal reform. Make no mistake though, the insiders will be just fine, its us ordinary citizens that will live in a depression era. Sorry to be the bearer of bad news…

  13. MONEY WILL BE THE LEAST OF OUR WORRIES IF FOLKS DONT WAKE UP FAST TO WHAT ALL THE CRIMINAL CENTRAL BANKSTERS ARE DOING TO THIS PLANET WE LIVE ON. YOU ONLY NEED TO LOOK AT THE DATA ON EPA.GOV AND I THINK YOU WILL BE DISTURBED AT WHAT YOU WILL FIND. WITH RESPECT TO CLIMATE CHANGE AS WELL AS SCIENCE EXPERIMENTS ONGOING INVOLVING NANO TECHNOLOGY,NANO ORGANISMS, CHEMICAL ARISOLS,POISONS,ETC. YOU NAME IT. AND THATS A FEW OF THE NICE THINGS THEY SPRAY IN THE AIR WE BREATHE . ANYONE BEEN FEELING STRANGE,OR NOT QUITE YOURSELF LATELY? MOODY, HEADACHES,TROUBLE SLEEPING? IF YOU DO A LITTLE LOOKING AROUND AND REALIZE MAIN STREAM MEDIA IS TOTALLY INCOMPETENT.YOU WILL FIND A DIFFERENT STORY FOR WHAT THE BANK MAFIA IS DOING TO COVER THEIR ILLEGAL PONZI SCHEME. GOOD LUCK GENTLEMEN.

  14. the problem with the us of a..is that it has tried to bring ‘democracy’ to the whole world. having invaded 31 countries since ww11 ..in the name of democracy…lol..it has shamelessly raped the economies of these countries and left an indelible stain..oil and drugs were the prize. if you tried democracy in zimbabwe fair enough..but no ..there are no drugs or oil in zimbabwe..so magabe is still there doing his thing. no such luck for hussein (iraq) weapons of mass destruction..or gadaffi (libya) and many other nations (Vietnam?) so it seems that the chooks have come home to roost. governments the world over (except) iceland have proven to be gutless morons. this whole charade should have been guilotened in 2008. and michael is absolutely right..nirp is a real pest. so where to now? well we could start by putting those nefarious bankers in jail and let their banks collapse. we can always start afresh….iceland did in 2008 and now has a thriving economy..interest rates 4-5% and full employment. i am in australia and we are just as guilty as the rest of the world . our state premier is trying to sell off every public utility he can.. to reduce ‘public debt’. oh for a man like plato or socrates..

  15. The things that really piss me off are: we are retired and not receiving ANY money on our retirement account! There was a time when you could expect a 4/5% return but now the people in charge could care less about us retired Americans. The stock market has become a video game just like the know it alls in 2000, I lost a bundle in 2000 and it was ALL my fault, I listen to nobody now and will NEVER go into the market again. I am looking forward to the eminent crash in the stock market as well as the Real Estate market, I am hoping they both crash hard. I am prepared this time around.

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