From ClubOrlov
TUESDAY, JUNE 21, 2016
Dmitri Orlov
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.
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