Tuesday, June 21, 2016

Negative interest rates are coming to America

Well, that didn't take long! Negative Interest Rate Policy appears to be a gift that keeps on giving.

Just a little while ago I wrote that, in essence, if the Federal Reserve wants to keep the financial party going a little bit longer, it will have to continue lowering interest rates to below zero, as this is the only way to keep broke debtors alive and prevent the gigantic debt bubble from imploding. And now we find out that the Federal Reserve has resolved any legal impediments (such as the Federal Reserve Act) that have kept it from doing just that.

To recap, negative interest rates are a way to pay debtors to hold onto their debt instead of defaulting on it or repudiating it, thus preventing the debt pyramid from pancaking and taking the entire financial system with it. But this effect is temporary, for at least two reasons.

First, negative interest rates are essentially a tax on savings, causing people to think of other ways to store their wealth: land, precious metals, boxes of brass knobs, what have you. In due course, money stops being regarded as wherewithal and starts being regarded as an unreliable way to conduct business.

Second, with a gigantic bubble in bonds now decades old and bond yields now going negative, it is a matter of time before the realization hits that negative-yield bonds are not any sort of safe haven. Their value is now strictly a matter of their market valuation, which can plummet the moment people decide to dump them, with no floor anywhere. After all, there are plenty of other ways to lose money, and negative-yield bonds are nothing special.

And so, what the flashing neon words on the wall seem to be saying is this: negative interest rates are on the way throughout the “developed world.” In due course, they will demolish any remaining value of the US dollar (along with other NIRP currencies, such as the Euro and the Yen, to mention a few). Also in due course, they will blow up the bond bubble, and impair the debt financing function of Western and Japanese banks and corporations. And once this happens, obtaining new credit will become problematic.

In turn, this financial collapse will cause problems with letters of credit and bills of lading, meaning that cargo will not be loaded on ships, and the ships won't sail, leading to shortages of imports, disrupted global supply chains, triggering the next stage: commercial collapse.

That, in turn, will cause the tax base to shrivel and tax receipts to drop precipitously, impairing the ability of governments to continue to function. (Countries that insist on stationing their troops around the world for no good reason will be affected especially badly.) And this will bring on political collapse: governments will have a hard time pretending that they still exist, never mind being able to demonstrate that they still matter.

At which point you will suddenly find yourself asking this: How far along are social collapse and cultural collapse where I am? Do I know who my people are, and will they stand up for me, and I for them, or is it every man, woman and omni/multi/homo/trans/nonsexual part-unicorn for him/her/itself? This is not some theoretical question, but a perfectly practical one.

For example, last New Year's eve in Cologne, Germany, a mob of around a thousand male migrants attacked and molested a large number of women. There were some German men on hand; did they defend their women? No, they didn't. Or take the recent incident in Orlando. Conspiracy theories aside, there were over 100 people there against one gunman. Did any of them rush the gunman? The first 10 might have gotten shot; but the next 10 could have piled on, dropped him to the floor and stomped on his neck, ending the incident. But that didn't happen, did it? Where was their killer instinct?

By way of contrast, consider the incident that took place in Murmansk, Russia, where some migrants that had been expelled from Norway for bad behavior started behaving impudently toward some Russian women at a night club. The local lads didn't like that at all. According to some reports, the police showed up when the situation was already well in hand, and did their best to show that they are no slouches either. Result: 18 rapey migrants ended up in the hospital, 33 in detention, all begging to be sent home. If you are thinking that these people aren't quite civilized, then perhaps you are right, but we need to further process this thought.

You see, when your civilization is collapsing, civilized people become a liability. It may not even be just a question of culture or society; it may be a question of breeding. Just as you can breed hunting dogs to specifically disable certain instinctive behaviors—pointers don't attack the prey but stupidly stand there pointing; retrievers stupidly carry the prey back instead of eating it on the spot—you can also breed a race of men that don't defend their women but stand there stupidly waiting for the police to show up and maybe do their job.

The selective breeding works like this: keep arresting all the men who exhibit normal violent responses to violence and sending them to jail, where the only relationships they can have are homosexual ones and don't produce any offspring. Then the only men who are left on the outside and able to breed are the docile, tame ones, and over just a few generations they produce a breed of docile, tame humans who stand around watching strangers manhandle and molest their women, or wait for a lone gunman to get around to shooting them, hiding in the bathroom and furiously diddling their phones.

There is no getting away from nature; chase it out the door, and it will jump back in through the window. Nobody has the authority to repeal natural selection; and when collapse occurs, those who were previously considered fit turn out to be unfit, and vice versa. Yes, you can pretend that everything will be all right because you have a pot of gold, a patch of farmland and some seeds, a well-stocked doomstead and a collection of pea shooters and pointed sticks with which you plan to single-handedly hold back large gangs of heavily armed, starving marauders. But let's not pretend. If you find yourself swimming at the shallow end of the gene pool, now would be a good time to head for deeper waters.

This article probably didn't go where you thought it would. But collapse isn't some mildly amusing board game that you and I get to play on Tuesdays. I write not to entertain you but to give you an edge. If you read this and yet do nothing, then you will have wasted your time.


Raziel Abulafia said...

Living well is the best revenge.

Unknown said...

Is that the new Federal Reserve Board in the picture?

VyseLegendaire said...

By 'Negative interest' you refer both to the rate of return on a loan or bond, but more presciently the phenomenon of divesting oneself from his milieu. Great article and concise!

Terry T said...

It's been said that ours is a thin veneer of civility. Your point about civility is well taken. Troublesome are the bullies who use their physical power to perform acts of injustice. Conversely, I can appreciate those who use their power in the force of instant justice (instant karma, if you will).

A certain unravelling of incomprehensible and conflicting legalities may have a bright side: some of those who abuse the letter of law to perform their injustices may finally get the karma they deserve. There are so many litigious and predatory people in the USA who, were it not for the layers of legal distance from their targets, might have to "civilize" their behavior due to the real threat of a swift punch in the face.

The power of the state and big business and the professionally litigious is far too asymmetrical with respect to an average individual. They hide, virtually anonymous and invulnerable, behind the legal bureaucracies that bind an individual attempting a normal productive life.

Heck, 51 burrowed bureaucrats can safely foment enough war to kill tens of millions of people. At least a band of marauders can be swiftly identified as such and be acted against. Maybe that's what it's going to take for individuals to find their own power again-- and the power of a local, defensible community.

Cortes said...

Around the time of Marcus Aurelius , Gaius was composing his primer in Civil [Roman] law. Using some lines from The Iliad about the long-haired Achaeans quenching their thirst by trading in bronze weapons and leather saddles and harnesses for wine, he demonstrated quite satisfactorily, to me, that excambion or exchange/swap is a more fundamental contractual device than purchase/sale making use of "money" in difficult times. When the holders of large amounts of digitised nada wake to the predicament they face - nominal, abstract measures of wealth being trumped (sorry!) by some schmuck's small but real possessions - human character traits will have an opportunity to, ahem, flourish.

Rob Rhodes said...

'Civilized' countries do maintain a "breed" of violent men, but only those willing to do violence on behalf of its rulers: cops and solders. Whether they maintain that loyalty may determine the outcome for the elites who employ them as civilization declines. As they may also seek to become the new elite of gangs and war bands it offers another reason to follow your advice and keep our friends close.

NowhereMan said...

Another great post Dmitry. For all the bluster Americans spew about brandishing their guns for self-defense against the many boogeymen who afflict us, most will meekly stand aside when the authorities come to take them and the rest of their civil liberties away, just as they've been doing so well ever since the 9-11 hoax was perpetrated at their expense. But seriously, how could any of our self-respecting psychopathic leaders have any sympathy for such a craven flock of little lambs anyway? We're all going down in one last glorious orgy of self-immolation and mutual bloodletting very shortly. Pass the popcorn - it should be one helluva show!

Macon Richardson said...

You note that "negative interest rates are a way to pay debtors to hold onto their debt instead of defaulting on it or repudiating it, thus preventing the debt pyramid from pancaking and taking the entire financial system with it." That might be true of new debt but look around you. All those buildings, homes, automobiles plus all other existing private debt is mostly locked into previous, higher interest rates. I don't see how future negative interest rates will affect existing contractual borrowing. The one exception, of course, is variable interest rates and I don't know what percent of existing date has variable rates. As to refinancing to take advantage of negative interest rates, I can't see why any creditor would refinance an existing loan and trade a positive cash flow for a negative cash flow.

On your discussion of civilizational collapse, I couldn't agree more. And yes, "when your civilization is collapsing, civilized people become a liability." A number of the preceding comments seem to have been written by "civilized" people who are afraid some bully will punch them in the nose. Too bad for them!

Thrive said...

Excellent! And BTW thank you for the podcast The US is sleepwalking..
Well, it looks like I won't be furiously diddling the cell phone, I'll have other surprises ready for visitors, because I am, after all, the consummate hostess. It appears I've lucked out as far as the gene pool goes, while my consideration, kindness and compassion knows no bounds for those I love, my place in the O'Tierney clan provides me with a deep 500 yr old rage that has never been settled. As a person of taste and class, I've been spending quite a bit of time putting together a lovely food forest and all the assorted infrastructure with my partner. Should anyone be so silly as to entertain the notion of 'uprooting' my hard work, well, then we can both be on the 5 o'clock news.

Unknown said...

Give the Germans a break - their aggressive tendencies have been bred away all the more assidiously, given... you know. Even now, the thought of mobs of German thugs roaming the streets beating up immigrants doesn't exactly sit well.

andriy said...

ZIRP/NIRP can endure quite a bit, Japan being a quite recent example. The state of no growth isn't that bad in itself. Until West can afford enough oil from abroad, everything will drag on. That also means that some day the era of fiat money will end, but it seems it that won't be any time soon.

The biggest difference between late stages of USSR and current agony in the West is perhaps that people of USSR knew about standard of living in the West and wanted to go there, while people of today's West are surely brainwashed about almost everything, but standard of living for majority is still decent/highest in the world. And people are afraid of any change. Expect Britain to (stupidly) stay in EU.

Jayhawk said...

I would add that when you have a generation of men who were raised by helicopter mommies, who were not allowed to even walk home from school on their own, whose mommies always solved their problems for them, then when the shit hits the fan they will be hiding in the bathroom on their iPhones, calling their mommies to ask what to do.

possumqueensa said...

I think we women should not be expecting men to come to our aid and putting themselves on the line for us. Nice if it happens, and it does happen quite often, but we should be arming ourselves with unconventional weapons and the knowledge to make effective use of them. After all, we have the surprise factor on our side. Nobody expects a Miss Kitty knuckeduster taser to the nuts.

DeVaul said...

This article brings back an event that happened to me when I was about 28. I was Deaf and disabled, and I was sitting in a McDonalds eating before I went to the YMCA to try and improve my health. As usual, I put my wallet on the table rather than sit on it (this was before cargo pants were invented or became popular).

A young black teenager came in and passed behind me and spent some time talking to his friends behind the counter, but did not order anything. He then grabbed my wallet on his way out. All I saw was an arm come over my shoulder and snatch my wallet, which was on my left. Without hesitation, I turned and followed him, forgetting my cane, which caused me to trip right at the door and barely miss grabbing him. He ran outside and jumped into the passenger side of a get-away car.

I got up and made my way to the car, which had been backed up to the door with the license plate pulled down so it could not be seen. It was all planned, except these brilliant thugs did not expect me to fight back. The driver and other passenger were milling around in the parking lot while the guy whole stole my wallet screamed at them to get him out of there. I blocked the entrance to the driver's side of the car and told him to give me back my wallet. A man standing on the sidewalk who was a fraternity brother of my own brother stood and watched.

The driver and other man said things to me, but I could not hear them, and they looked confused. Perhaps they were threatening me with a gun or something, but it did not work, so they pushed me away and drove off. At this point, the manager of the McDonalds came out and said he had the whole event on videotape, and wanted to know if I wanted him to call the police. I turned to him and said: "Yeah, call the police in Kansas, cause that's where they are by now."

The mugging did not shock me anywhere near as much as the fact that there were seven (7) men eating inside at the time and one man who I knew standing on the sidewalk who never came to my aid. I was deeply shocked and stunned by this. I did not even care about the muggers. I was angry at those who sat there and did nothing. A black woman returned my wallet to me later after she found it in her front yard, but I had no money to reward her with. It was empty.

Of course, the cops showed up, but that is the problem. They cannot "foresee" crimes. They can only investigate them after they happen. I learned a strong lesson from this event -- in the city, no one will help you but yourself when it truly matters.

Cortes said...

The lack of solidarity at Pulse or in the case of DeVaul is less to do with wimpishness than with the atomisation which engulfs those who live in over-large groups. We use a kind of stress test, on autopilot as it were, screening out those nonessential persons from the inner circle for whom we would face down the gunman, the casual thief even at the risk or even probability of our own injury or death. That's why military and paramilitary organisations invest so heavily in promoting esprit de corps. In his novel "Harbour Nocturne", Joseph Wambaugh has one of his experienced cops advise a younger colleague to draft a list of people she would be prepared to die for prior to them attending a "jumper" incident so as not to get too caught up in someone else's emotionally heightened and often substance enhanced potential moment of truth.
For clarity I should add that I was the beneficiary of a total stranger's altruism, in a dangerous area of Barcelona many years ago. And I have intervened to help a couple of people I saw threatened.

Anonymous said...

It's impossible to keep positive interest rates with this amount of debt (local and global).

The system his now in liquidation mode.

And it is a beautiful thing to contemplate!

DeVaul said...

Hmm... I disagree with Cortez, except his last statement, which I applaud. The men sitting in McDonalds were of a certain type. They were businessmen on lunch break. They were not from out in the country, and the man on the sidewalk actually knew me. He was a lawyer. My brother referred to him as a "total wuss" afterwards.

I was targeted by a worker at McDonalds who knew I had a habit of putting my wallet on the table while I ate. She called her friends and told them I was there. She knew the place was full. It was lunchtime. The seven men eating alone were not with their families, if they even had any. I had delayed the thugs long enough that they would have been caught if even just one person had helped me.

In 1984, I too stood up for a total stranger. I was standing in a subway in Germany late at night with only a young Turkish girl nearby. Then, three young men wearing black leather and looking like neo-Nazi wannabes came down and started walking towards the girl. I immediately walked right past her and stood between them and her. They stopped for a moment, then proceeded. I turned and faced them.

One pulled out a chain or something like that and held it out for me to see. I pulled my bowie knife out and held it out for them to see (in 1984, you could still pack knives in your luggage, and I wasn't about to go to a foreign country totally unarmed). They then looked worried, and hesitated, and then moved back before leaving the station. They had come to harm someone who was weak and defenseless, not get hurt themselves. They were, like that gunman, and all the others who target schools and such places, cowards.

If you stand up to them, they back down. 90% of the time. Their goal is to hurt someone, not get hurt themselves.

Macon Richardson said...

Cortes, thanks for the excellent advise on how one can build personal courage. On a slightly different note, over fifty years ago friends and I devised a technique for assessing who one could build esprit with. We were young teenagers during the US's Korean war and had been frightened by the scare stories of the "millions" of Chinese who fearlessly overran American positions during combat. By the mid-sixties we concluded that we could only build esprit with someone by asking ourselves this question of him or her: Would I want this person by my side when the Red Chinese army is trying to overrun our position? Ask that question of anyone you know and you will quickly be able to assess that person's character.

Though I agree with your comment on atomization, I don't quite know what "those who live in over-large groups" means. I think that whatever the cause, "wimpishness" is the word that describes the result of atomization. Mr. Orlov greatly overestimates the possibility of untrained persons, probably drunk or stoned persons, to rush the shooter (if there was a shooter). The immediate response to ambush is to run for cover (if indeed there was an ambush). He underestimates the narcissism of those who party at dance clubs after two a.m.

D.Mitchell said...

My father served time for multiple felonies after I was made and I managed to avoid such issues by the skin of my teeth, mostly because I was a kid. I have settled down for my children's sake. They have been raised in the wildest area I could find that wouldn't kill the outright at 4 years old. They have been able to experience the savagery of nature through tornados, wild cats, bears, poisonous snakes, etc.. I however have kept the greatest dangers away from my children, which I encountered as a child, other humans. They have limited and supervised exposure to other humans, especially Americans, because they are all a threat in some manner. Perhaps this was a mistake.

In order to face a threat, you must be familiar with it. Humans have a vast and complicated array of emotions and motivations that can be assessed if you are familiar with the culture, facial expressions, etc... My children have been kept away from that to keep them safe. That doesn't mean they are docile exactly, it just means they may be unaware of a threat if they encounter it from other humans.

While I agree they are trying to breed out the violence in some alpha males, especially those that can not be controlled, through the prison system, I think you discount the number still available. My grandfather was a war hero. My father a felon. I rank no where on the scale. I am invisible to anyone in view of violence at least. My children, I expect will be one or the other, at least one anyway. I see the way they shuttle away the strong willed ones, first into psychiatric wards, then prison systems. It is a way to label and make meek the once great.

Also, about men...as a woman, I prefer if a man takes care of rapey people for me, but I have dealt with my fair share alone as a young teen. A woman can handle one or even two attackers with the right training or weapons. However, when the attackers outnumber women 10-1 men have a duty to step in on their behalf. Anyone not helping out is dishonourable and should be shamed.

I have a son, only 7 years of age, and if an unrelated man so much as raises his voice to me in my son's presence, he will tell him off. He is less than 4 foot tall and he will tell a 6 foot man to shove it. Usually, the embarrassment of having a child point out their sad behaviour is enough to shut a man up that is in the wrong. I have only had one man ever try to tell my son where to shove it, when he was 6, and I was sure to let the man know that after I was done with him his father would take his turn and then all of the rest of the family. True or not, I didn't plan to leave much for anyone else to have to deal with...sometimes it takes standing up to the giant alone. The man looked up and saw the entire family pissed at him. His eyes grew wide and he put his hands up defensively. He said, I'm sorry but he is a smart mouth. I told him it was none of his business and to get on before I gave him what for. The man backed off and walked away. I tell my son, the bigger they are the harder they fall. He's 3 foot tall and isn't afraid of anyone...that is how it should be. There are more than you realize, they are just pint sized or worried about their family, so they keep themselves in check.

Unknown said...

Worth a read: the bystander effect. TLDR: It is less likely someone will intervene...

...the less the situation seems like an emergency.
...the more ambiguous the situation is.
...the less significant the apparent consequences.
...the less familiar the bystander is with the environment.
...when group ties (esprit de corps) are absent or weak (not a problem in Murmansk apparently).
...the more people are around.

Not sure what to make of the non-intervening lawyer friend though. Maybe the model needs to be expanded to account for lawyers.

Dr. Doom said...

My father had a lot of that crude frontiersman genetic make up. As he got older, he relied upon weapons more so than his physical skills. I feel the same urges, they are violent, if need be. I'm trained to be docile, but it wouldn't take much to go the other way.

Regarding the amazing odds against the Orlando shooter (100 to 1) reminded me of perhaps the most lopsided military victory in history. Two hundred musket-armed spaniards against 30,000 Inca. Pizarro and his men won. The relatively lightly armed Inca could have just piled on and smothered those soldiers, but they didn't, and it changed history forever.

DeVaul said...

"In order to face a threat, you must be familiar with it. Humans have a vast and complicated array of emotions and motivations that can be assessed if you are familiar with the culture, facial expressions, etc... My children have been kept away from that to keep them safe. That doesn't mean they are docile exactly, it just means they may be unaware of a threat if they encounter it from other humans."

This is an extremely important statement. It is true. It has made me think very carefully about my decision to home school my daughter to protect her from bullies at school, as well as overzealous burocrats and mindless teachers.

The intentions of thugs are almost always clear, but those of sociopaths and psychopaths are almost always hidden. I had to learn this the hard way. I plan to incorporate my past experiences with them into teaching my daughter at home, but as I said before, I still do not understand what their exact purpose is for being among us, and my daughter always asks "why?". I'm still not sure how to answer that.

Tomuru said...

Talk about who exactly is in control of everything, take a look at what Raul Illargi just dug up and not a moment too soon.


D.Mitchell said...

DeVaul, why is a lot harder. For a very small child, I would just say there are some people more evil than good and leave it at that...using a yin yang symbol. It's simplistic, but it let's them know not everyone is safe and not everyone is 100 percent evil.

casamurphy said...

Mr. Orlov, I would appreciate your comments on the likelihood that the Russian Federation might ever consider adopting this proposal (see link below) presented by Hugo Salinas-Price, President of the Mexican Civic Association, A.C., offered to the St. Petersburg International Economic Forum, June 16-18, 2016, at the generous invitation of Mr. Sergei Prikhodko, Deputy Prime Minister of the Russian Federation:


DeVaul said...

" For a very small child, I would just say there are some people more evil than good and leave it at that."

Not every child is the same. My son would accept this explanation when he was 3 or 4, but my daughter would not. She continues to ask why this or that person does this or that, or why they behave in such and such a way. In the end, I have to tell her that "that's the way life is", but I can see in her eyes that she is not satisfied with that answer, and now that she has been punished for defending a girl at school who had autism, it has only gotten worse.

I suppose I am to blame. I was the same way. My Papaw became so exasperated with all my questions that he imposed a 10 question limit on me per day. If I went over it, I was sent out to trim grass with a hand clipper (still didn't work -- I just used the time to come up with new questions for the next day). :)

jetstove said...

We have been conditioned to wait for those in authority to deal with the situation...or not. Individual action is repressed or even opposed.

Cortes said...

Jet stove: in the 1920s Ortega y Gasset pointed out the difference between what he described as "circumstances" and "character" - for him "character" was decisive in encounters with "circumstances".
A subtle restatement of the age old excuse for inaction alluded to by Ecclesiastes: "there is a lion in the street".

Unknown said...

Bene vixit,que bene latuit - Ovid

Headsails said...

Well put. I'm glad I'm Basque because survival instincts run deep in them in the same way as it does with Russians. Your explanation is spot on.

Unknown said...

The negative interest rates are not only limited to Europe. Six central banks around the globe have instituted negative rates, including both the European Central Bank and the Bank of Japan. Five year government bonds in Japan now pay a loss of -.2% if you hold them till they mature.