Another Negative-Interest-Rate Central Bank Laments What Negative Interest Rates Have Wrought

Instead of warning about the effects of this absurdity, they could just raise rates and quit buying bonds.

By Nick Corbishley, for WOLF STREET:

Just two days after French luxury giant LVMH picked up Tiffany & Co. in a €14.7-billion deal, the Bank of France has warned that large French non-financial corporations, many of them part-owned by the state, have been taking advantage of years of low or negative interest rates to take on dangerous levels of debt.

Much of that debt has been used to buy up overseas companies and assets, the central bank warned in a report published in its November monthly bulletin.

Unlike some of their European peers, French firms’ net financial indebtedness (the total amount of debt minus available cash) has continued to rise since the 2008 financial crisis, reaching €3.6 trillion earlier this year, the equivalent of 143% of GDP, having increased more than 30 percentage points in 10 years. That was enough to earn the country eighth place on WOLF STREET’s leader board of the world’s most monstrous corporate debt pileups, just one notch below China in seventh.

The Bank of France’s warning is the latest in a series of dire warnings by central banks about the risks they themselves have created with their QE programs and interest rate repression, while simultaneously doubling and tripling down on QE and interest rate repression — much like a doctor might misprescribe a medicine, then, after the damage has been done, warn the patient about the dangers of taking that medicine, and yet for some reason continue to insist that the patient keeps taking the medicine.

Among the central banks that have issued warnings In the last past two weeks alone:

  • The Federal Reserve cautioned that business debt levels are “high compared with either business assets or GDP, with the riskiest firms accounting for most of the increase in debt in recent years”. Around half of investment-grade debt outstanding is currently rated in the lowest category of the investment-grade range (triple-B) “– near an all-time high.”
  • The ECB warned that “very low interest rates, coupled with the large number of investors which have gradually increased the duration of their fixed income portfolios, could exacerbate potential losses if an abrupt repricing were to materialize.”
  • The German Bundesbank said that negative interest rates are encouraging banks in take on ever greater risks, expanding their lending to “relatively high-risk businesses” while simultaneously reducing their provisions. German lenders have also increased their exposure to the fast-growing domestic real estate market, while the Bundesbank considers house prices in many cities overvalued by 15% to 30%.

Now, it’s the turn of Banque de France to sound the alarm bells concerning the massive, unchecked rise of corporate debt in the country. The interest rate for lending to NFCs averaged 1.56% in 2018, its lowest level on record, according to S&P Global Ratings. This year, the ECB has cut its negative policy rate deeper into the negative. Small and midsize enterprises (SMEs) have used this opportunity to take out bank loans, while large companies have issued debt easily on the capital markets.

Some companies have held on to the extra funds as “dry powder” to fund capital expenditure (capex) needs, or as liquidity reserves to fend off takeover attempts. But many of them have used it to buy back their own shares or go on M&A sprees, often oversees.

“By 2018, 123 of the 215 groups under review had made an external growth investment,” says the Bank of France’s report. Many of the acquisitions have taken place since 2016, when the ECB embarked on its corporate debt purchase program which made it much cheaper for corporations to issue fresh debt. As the report notes, “the burden of this debt will have to be covered by the future revenues released from these acquisitions.” In some cases, however, there is a risk that “anticipated future revenues may be overvalued.”

The problem is not just that the corporate debt pile is growing; it is that it is growing at the same time that many of the companies’ operating profitability is falling. In a core sample of 177 large groups, average operating profitability decreased from 11.1% to 9.8% between 2016 and 2018. As such, many companies’ capital profitability is being driven more by leverage than by operations.

As the firms’ profitability has fallen, their self-financing capacity — their ability to generate growth capital from their own income, instead of acquiring it from external sources such as investors or lenders — has also deteriorated. According to the Bank of France, in 2013 it took theoretically an average of two and a half years of self-financing for a company to repay its debts. By 2018, it was up to three and a half years.

By increasing their debt leverage as their profitability falls, French corporations are putting themselves at huge risk in the event of a sudden rise in interest rates. “The repayment capacity would deteriorate significantly,” the report warns. While such a risk may not be of immediate concern, it could become a long-term issue.

If rates do suddenly rise, there is a further cause for concern: companies’ liquidity buffers, which are now at their lowest level since the financial crisis. Among the large companies analyzed by the Bank of France, the average cash to equity ratio — the ratio of a company’s cash on hand against the total net worth of the company — has steadily declined since 2012. At last count, in 2017, it was just 21%, compared to 27% in 2009. Even in 2007, on the very eve of the last crisis, it was 22%.

So, according to the Bank of France, a lot of French corporations, some of which are partly state-owned, are not only far more leveraged than they were in the past, having issued buckets of “cheap” fresh debt to buy their own shares or overseas companies and assets, they also have far less liquidity on hand to deal with an unexpected turn of events, and their operating income is declining, which makes the Bank of France another central bank that laments what central banks have wrought. By Nick Corbishley, for WOLF STREET.

Telefonica, with operations across Europe and in Venezuela, Argentina, Chile, Peru, Ecuador, Colombia, and Mexico, is on the verge of “junk,” and the ECB holds some of its debt. Now it’s trying to dump its operations in Latin America. Read… Over-Indebted European Telecom Giant Tries to Dump its Latin American Empire

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  127 comments for “Another Negative-Interest-Rate Central Bank Laments What Negative Interest Rates Have Wrought

  1. 2banana says:

    Let me take a guess.

    They all consider themselves as Too Big To Fail (TBTF).

    And any and all bad decision will be bailed out by the state.

    Additionally, they all consider themselves as Too Big To Prosecute (TBTP).

    As none will face the law for fraud or violating GAAP.

    It is not a new scam.

    “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy,” Holder said”

    • polecat says:

      Yeah, but are they too big for the pitchfork wielding mob dragging the guillotines … ??

      • Mike G says:

        That’s what the militarized police forces are there to prevent.

        • DidSimonPotterKillVoldemort says:

          Hopefully those militarized police forces don’t have a wife/ kids/brother/sisters/etc who broadcast their location metadata through social media or any of the numerous malware masquerading as applications on their devices… or have vulnerable supply chains… soft targets :D

    • wkevinw says:

      The Holder statement was the biggest thing in the Obama Admin. It proved they couldn’t do anything better with the most important problem of the day in the executive branch than the previous clueless administrations.

      I think he actually agreed with the statement that they were too big to fail.

      Sad and grotesque.

      • Petunia says:

        Holder’s statement was an admission the markets are rigged for the insiders. What I can’t believe is people are still giving these crooks money.

    • MC01 says:

      French supermarket giant Groupe Casino entered bankruptcy protection in May over €3.3 billion in debt they could not service anymore… at these unbelievably low interest rates. And there’s likely more where that came from, as accountants named by the Commercial Courts of Paris are going through their books with a fine comb.
      The Casino CEO, Jean-Charles Naouri, believed his group was too big to fail and that he would be bailed out no matter what. But in the end even the French government, known for its constant meddling at all levels of the economy, could do nothing more than let the law run its course.

      No crime was committed, unless one considers stupidity a crime: investors handed Naouri million after million after million at unbelievably favorable conditions, knowing fully well how overtly leveraged his empire was and how cutthroat the market it operated in was. They did not demanded to be compensanted for the risks they were taking, most likely they didn’t even care until it was way too late.
      Same arrogance as their ancestors who thought they could defeat German artillery and machine guns with cold steel and “Furia Francese” (while staying thirty miles behind the frontline), and same results.

    • Reality says:

      I am just wondering why any Central Bank would allow rates to mean revert since by doing so the host nation would instantaneously be bankrupt or its currency hyperinflated in an attempt to pay the massively higher interest payments on the national debt. Hasn’t the BOJ already shown us the playbook of what future actions of Central Banks look like?

  2. Jacob says:

    Wolfe, I’ve been reading the same warnings, and painfully waiting for debt to matter for 7 years. I’ve believed inflation will move higher at some point, blowing everything sky high, but they seem to have a good handle on inflation. Here in Australia many things are starting to spike higher, and our drought and fires are crippling primary industries. Globally weather events are causing chaos, can you see climate change (be it man made, natural or engineered) leading to inflation?
    And if not, when does the ride stop?

    • Jeff Relf says:

      Millionaires erect their sea-side mansions
      in hurricane alley and next to California’s national forests.
      They should buy insurance instead of saddling us with guilt.

      Every religion has an apocalypse,
      and the climate cult is no exception;
      not everyone wants to drink their Kool-Aid.

      I see a lot of dry tinder, out there,
      in the form of risky debt.

      Again, it’s not my fault;
      I didn’t build there, they did;
      I don’t want to pay for their tomfoolery.

    • historicus says:

      Debt to matter..?
      The Fed is buying $60 billion a month of that “debt” so it doesn’t hit the market…
      and injecting copious amounts at each Repo event….
      Debt is mattering big time…everyone afraid to look

    • Lisa_Hooker says:

      Jacob – for me make it 17 years, ever since the year after Greenspan cut USA interest to 1% and the money was “misapplied.” The ride will continue as long as there is energy to push the ride.

    • sierra7 says:

      What’s keeping inflation “low” is the globalization of wages……nothing more or less.
      For now and the immediate future that is the catalyst for keeping a lid on “inflation”.
      “You wont’ work for this amount of $$, we’ll move.” Screw you.

  3. Memento mori says:

    …By increasing their debt leverage as their profitability falls, French corporations are putting themselves at huge risk in the event of a sudden rise in interest rates..
    It’s never going to happen, low interest rates are here to stay.
    Looks like Dow is going to hit 30k earlier than my prediction of November 2020.
    If it does, expect it to go 40k in a short period of time afterwards.
    Relationship of company share price and profit is breaking down and it will become completely irrelevant as it starts to reflect the current monetary system breakdown potential.
    Companies are also taking debt a as a way to short the current currency system , they don’t expect to pay it back or if they do , it will be in much more devalued fiat. Some of those big corporations employ very smart people and they know what they are doing.
    Even for the modest readers of this blog, it should be obvious by now that there is no way interest rates can go up.

    • DawnsEarlyLight says:

      True, but at ‘some point’ the increasing debt leverage should overwhelm the ‘decreasing profitability’. The question is, how long/or lower can these interest rates support these crumbling corporations.

      • DidSimonPotterKillVoldemort says:

        What do you mean? You are saying that 47% of the IG paper is rated Baa1 or less, with maturity dates 10 years or longer, with debt multiples that would already make it junk, trading at least 10% above par on avg, with mostly no covenants with services sectors starting to turn down with manufacturing sectors already in dumpster, cant go on forever?


        • Unamused says:

          . . .cant go on forever?

          The future isn’t what it used to be, DSPKV. You’d know that if you’d ever been there.

          But neither am I, for that matter. Hanging out with you guys has made me terribly cynical. I really miss me sometimes.

          They say that Rome wasn’t built in a day, but in point of fact it was never actually finished.

        • MC01 says:

          “The world wasn’t made in a day/And Eve didn’t ride in a ‘bus/But now most of the world’s in a sandbag/And the rest of it is splattered on us”

          Anonymous British soldier in the Flanders, writing before the Passchendaele “Big Push”

        • DidSimonPotterKillVoldemort says:


          Don’t take it so hard, just sit back and relax from you most comfortable jurisdiction that is sufficiently in the shit hole enough that doesn’t look to hard about where your money comes from as long as you keep spending it when a couple of eggs shells get cracked… who likes omelettes!

    • daniel weise says:

      At the first Whiff of Inflation the Fed will have NO CHOICE but to raise Rates. if you think they worry about Deflation wait for the Panic that sets in when the Inflation monster rears it’s ugly Head. very hard to control once in motion. When? Not anytime soon would be my guess,perhaps coinciding with the next economic upswing (After the coming recession) and when Wage inflation starts to kick in. That’s when all that printed Money will finally hit the Street. OR it could go completely different! LOL

      • hidflect says:

        But they can’t raise rates. It would destroy too many mortgagees, SMBE’s, corporations and governments who borrowed to the hilt at the lower number. Excessive and extended rate decreases are a one way street from which there’s no way back. It’s the new normal. We’re stuck.

        • historicus says:

          They cant raise rates?
          They are on the verge of losing control of that which they have wrought….
          Helicopter money… is B52 money dropping….

        • Rate will not rise “suddenly”. The REPO crisis in America was probably a collateral problem, but it could be a cash problem as well. Cash is trash, everyone is fully invested, the point of pumping more cash into the system is what? The US monetary base has been shrinking (recent REPO action has biased the supply). They will probably use some regulatory action to tighten credit. The EU has greater reach and blanket authority. They can keep rates low and tighten the volume of new credit being issued. The EU is now part of IMF, I suppose, they will address sovereign debt as an issue,. This is why NIRP will not work in the US.

      • Jon W says:

        The fed and globalisation have inflation well under control. Many workers are simply wards of the state, facing marginal tax rates of over 80% thanks to all the in-work-assistance/tax credit programs they need to live pay cheque to pay cheque. These folks have no ability to generate demand, even if they could generate wage rises.

        No, the correction will come because eventually all these folks are going to vote for a populist govt that will un-bottle fiscal stimulus, or do helicopter money. This will drive up wages fast, which will promptly be eaten by inflation. The angry masses will then demand more be done to raise their wages and off we go.

        Depending on how independent central banks are at that point, they will be forced to crash the economy to stop an inflation loop being established. This will also fix the problem without any inflation occurring (if we can survive the ensuing depression).

        The real problem is the destruction of the incentive system in the real economy and unconstrained debt growth. Until those two things are fixed, we will just get increasingly populist govts until we get one that is radical enough gets in. My prediction is that Bernie and Corbyn will look like moderate centrists by the time it all boils over.

        • historicus says:

          “The fed and globalisation have inflation well under control.”

          Stay tuned….

        • Jacob says:

          So, its like i thought, prey for Pocahontas to wreck their party.
          Ha! It’s a mad world alright

        • Lisa_Hooker says:

          John – I the marginal tax rate for some of the poor exceeds 100%. The potential loss of subsidies and assistance to the “qualified” poor has incentivized them to remain collectors not workers. We should not blame them. They did not implement this system. It was the good intentions of the politically connected and “medium rich” that insisted on this largess. Now we’re stuck as we never could afford it.

      • Cashboy says:

        daniel wise: “Wage Inflation” !!

        How can there be wage inflation with AI, databases and robots in the future? Middle management jobs are going as a result.
        No company in the west needs to pay more than minimum wage in the future because they know that the governments will be paying state benefits to employees and in effect subsidising companies.
        And if this was not the case, why are countries like Norway experimenting with a “Living Income”?
        Interest rates cannot go up because everyone (corporations and persons and government) could not pay higher rates of interest.
        Surely the more people without jobs, the less customers the corporations have to buy their products.
        As we know, most of the corporate products being bought now are with debt.

        • nhz says:

          “the more people without jobs, the less customers …”

          Fortunately there is always government that make sure that people without money continue to buy products that are way too expensive for their means, like heavily subsidized housing/healthcare/tuition etc. etc.; just put in on the tab for future taxpayers and the e-con-omy can hum along just fine :)

          BTW, there is quite serious wage inflation in my country with large groups of government workers getting 10% or even higher pay raises within a 1-2 year period. Of course pay raises outside the government sector are more modest (except for top management …).

  4. A says:

    The literal plan was:
    1) print billions of dollars and give it to billionaires
    2) take money, like a tax, from the money the middle class put in their savings accounts and call the tax “negative interest rates”

    It’s all a big plan to take money from anyone in the middle class with enough money to put it in a savings account and to take all of it, plus the new money they printed, and give it all the billionaires.

    Now they are kinda sad and sorry? I’m sorry for the middle class child who’s college fund is empty, the family that can’t afford life-saving medication for their mom, the grandparents who have to sell the family farm of 200 years to an evil billionaire corporation.

    • 2banana says:

      Stop playing their game.

      I have come up with a partial solution to what is coming.  Feel free to add.

      1. Take care of your health.  Exercise.  Eat healthy even if it costs a little more.

      2. Stay out of debt. Live beneath your means.

      3. Keep learning. Learn new skills. Learn how to fix and build things yourself. Invest in yourself.

      4. Realize that government (at all levels) will lie to you. Government will not take care of you. Government will take everything you have if it means they stay in power just one day longer.

      5. Buy a little gold and silver. Bitcoin if you must.  But realize that this is just a little insurance and not much else.

      6. Stay far away from bubbles. Hard to do when friends and relatives are getting “rich” and think you the fool.

      7. Relationships are worth far more than “stuff.” Families are worth way more than “stuff.”

      8. Enjoy life. It doesn’t take lots of money.

      9. Learn how to shoot safely and have at least one gun. Even if you think you will never touch it again.

      10. Be part of “something” bigger than yourself such as a Church or a volunteer organization. All the issues we see today are the same issues seen in the last 2000.

      • daniel weise says:

        Amen to that! except: “buy a little Gold and Silver” i would say buy as much as you can possibly afford and start positions in Miners,the most un loved asset class out there,until…..

        • bungee says:

          and i will add, learn the difference between silver, an industrial metal, and gold, a tradable wealth asset. why shoot for a maybe second place?

          also, we dont have to worry about gold confiscation per se, but mines being nationalized or windfall profits taxes will be a real threat. bleeding governments are not going to allow mining companies to pull wealth out of the ground. Miners are sitting ducks. the laws on mineral rights will be changed. most mining shares won’t survive this. if you are protecting yourself against paper…dont buy paper!

          as for the article, how does it work in europe? I mean, france cant just print euros and bail out its TBTF companies when SHTF… or can it? who owns the ECB? maybe since LaGard is in there france will get some extra moolah. heh.

        • Frederick says:

          Daniel, Absolutely correct sir

        • TXRancher says:

          Ever since the world is off the gold standard as a basis of money I would argue that both gold and silver are nothing but industrial metals used for circuit board and electronic component manufacturing. Would I take gold for one of my cows? Nope.

        • bungee says:

          gold is still a reserve of central banks. it’s use as jewelry is really just wearable bullion. it’s use in electronics, dentistry we can just call negligible.
          a cow is a “productive asset”. It has costs associated with it such as land, feed, medicines and fencing. it involves labor such as milking, feeding, slaughtering, rounding up. it produces (maybe!) a return and involves money, work and risk. It is therefore an investment. You would never save in cows because there is too much work, expense and risk involved. And besides, even if you could do it all easily and cheaply the cow dies eventually so it’s not a very good store of value.
          If on the other hand, you made a profit from the cow beyond your needs and expenses you could then become a saver, buy gold and be done. You would then be rich, having excess purchasing power stored safely in physical gold.

          gold is MORE important once off a gold standard since credit expansion must continue unchecked.

        • bungee says:

          …also, you are implying that money gave gold it’s value! smh, it is truly the other way around…

        • The Chinese just paid 1.3 billion for Continental Gold Inc up in Canada. That should tell you about the direction of the U.S. dollar and U.S. interest rates.

      • dos tacos mas says:

        “8. Enjoy life. It doesn’t take lots of money.”

        Decades ago, I read a book titled “Champagne living on a beer budget”and by golly it ain’t all that difficult if you just pay attention!

        And you’re right – the important things are your relationships – stuff is just stuff, and frankly, less is more.

  5. Cyclops says:

    After the pop of the Financial Bubble 2 , we will hear the great sucking noise and hear about the aftermath blaring on TV.

    The dollar remains the king with HK dollar pegged to it.

    We could have rapid deflation of the dollar’s purchasing power!

    IMO, pay off your credit cards ASAP because you need whatever dollars left for the unexpected!

    • Cashboy says:

      Think for me !

      I thought I was doing everything right.

      I stayed single.
      I am 57 years old.
      Since 2007 I cleared all debt and have been living very modestly in a large house with no loan in the UK.
      I cashed in any private pensions as I believed that they will be worth little or even nothing at all when the bubble pops.

      I could see the EC going into massive decline with the wrong type of immigration.
      I have rented some rooms in my UK house for “cash”.
      I bought a few acres of farm land in Thailand, sufficient to be able to grow my own food if necessary.

      I have my own accountancy practice in the UK that I am able to operate while in the UK and Thailand bringing in a modest income.
      I stopped looking for new clients as I find their work ethics and attiyude frustrating.

      I still am able to save 50% of my income.

      I live 50:50 UK:Thailand to ensure that I am officially resident in the UK and will be entitled to the UK state pension when 67 years old (10 years) and can get free state health care if necessary.

      I take cash to Thailand and use 10% of it to buy physical Thai baht gold bars. The 90% goes into a bank account in Thailand kept in Swiss Francs and Thai baht.

      I was thinking that I would be cash rich and “cash is king” and would have some massive buying opportunities when everything crashes.

      As a result of this thinking and my positioning have lost the opportunity to invest and work as I used to over the last 10 years.

      I conclude:
      The western banks are insolvent and keep lending.
      The Central Banks appear to continue printing with no plan or ability to stop.
      Interest rates cannot go up as governments, corporations and individuals could not service the debts.

      Surely I am not the only one that is in this position and doesn’t know what way to keep their modest capital?

      • nhz says:

        Sounds familiar; over the last 10 years (especially) financially prudent behavior has been heavily punished and stupid/reckless behavior has been richly rewarded. It is difficult to survive against such massive bad incentives.

        I’m in a bit similar situation, possibly a bit more capital but no income. I’m wondering if I should move out of Europe (to e.g. Thailand, Costa Rica, don’t really know where as most of the more attractive countries are difficult to get into if you get older and don’t have millions to buy residence there) or maybe some remote corner of Europe and continue my premature retirement (due to health problems) there in order to survive financially; but I have no experience living there so it would be a big gamble. It is also difficult to predict how the current idiotic policies will work out 5-10 years down the road, even countries that look safe now might be in big trouble when the Everything Bubble collapses.

        I’m sure some people in such position are tempted to throw all their money in the stockmarket or real estate (with huge leverage) and hope that the lottery ticket works out. I see this happening all around me but in most cases I don’t know how well people have really thought about what they are doing, especially all those who are spending their savings on real estate that isn’t even rented out. It works great for them but it is impossible that this will work in the long run because it completely destroys the market (and the social fabric). Newspapers just reported here that for people with median income only 2% of the homes on the market are affordable; and in some parts of the country it is even worse. So most is bought by speculators, who effectively take the homes from the market, drive up prices, rinse and repeat. All heading for the biggest crash in history while government and central banks do everything they can to spike the punch bowl and prolong the current party for the financial idiots.

        • Lisa_Hooker says:


          So most is bought by speculators, who effectively take STOCKS from the market, drive up prices, rinse and repeat.

  6. Wes says:

    Interesting and accurate analysis Mr. Richter. Here’s a link on a potential paradigm shift at the US Federal Reserve. Look at what they are finally admitting to about why they haven’t been able to break the 2.5% Inflation barrier. It looks like they have finally recognized the real state of the consumer, middle class etc. They’ve finally confessed and admitted their denial. Pay close attention to what they are saying about long term interest rates also.

    • bungee says:

      Hi Wes,

      Nick Corbishley is the author of this article, not Wolf Richter.
      just fyi

    • historicus says:

      “It is the Federal Reserve’s actions, as a central bank, to achieve three goals specified by Congress: maximum employment, stable prices, and moderate long-term interest rates in the United States””

      The Fed promotes inflation, a violation of “stable prices” mandate
      The Fed now faces 4000 year lows in long rates, and does nothing to promote “moderate” rates (moderate = not extreme)
      So they are in constant violation of two of the three mandates under which they are authorized to operate and wield special powers.
      Any one notice?

  7. Dave says:

    There’s no need to have consumer price inflation with negative interest rates. Companies simply sell everything at below cost, and borrow more at negative rates to cover their losses. Anytime upward price pressure develops, you lower the negative rates even more. (Since no profits are generated, no taxes are paid!) I think the Soviet Union followed a similar policy.

    • Leser says:

      Exactly. And I may add: and over time a parallel currency will be used in the shadows – as had happened in the Eastern bloc.

  8. Claude says:

    lipsitck on pigs everywhere
    this liquidity NIRP ZIRP QE POMO TOMO….are part of the whatever it takes It is now permanent and it takes more and more debts to paper over the insolvencies about 5.4 $ debt for 1 $ point of economic growth if I am not mistaken
    It is the zombification of the economy
    as long as you get cheap/free money to pay for your interests on the debt and you can perpetualy roll it over! you do not need to be profitable you just make money taking on more debt! debt is the money!
    But you can never stop without imploding all the bubbles at ounce
    the economy is financialized at 155%
    the central bankers are the arsonists and then supposedly the firemen

  9. Old-school says:

    It’s taken massive deficits, tax cuts and drunken central bank policy to get SP500 Gaap profits from $103 to $136 in 13 years. If we were living in a sane world SP would be 1900 or so.

  10. Ole C G Olesen says:

    1.Non Financial Corporate debt is defined as Total Debt minus Available Cash … it is stated. How is that “Available Cash ” number estimated calculated ?

    2.Non-chinese Corporations produce up to 40 – 50 % of the Total Manufacture in China.. How much of the ” Chinese ” Non-financial Corporate Debt can be allocated to non Chinese Corporations located in China ? 40 % ….. 50 % ? … And how much of this debt is in reality to be allocated to USA Companies ?

    3. US Companies generate approximately 900 Billion in PROFITS selling their Products produced in China on the Chinese Market . That must be compared to the total value of Products produced in China and EXPORTED to the USA Market .. which amounts to approximately 500 Billion USD ( Just these facts should make Trumps attempt of balancing the Trade deficit with China .a fragile undertaking , because the USA Corporations do NOT want to harm their lucrative business inside China ! .

  11. medial axis says:

    Short fiat. Long “block chain” ;-)

    • Wolf Richter says:

      Bitcoin at $7,200 at the moment, down 64% from two years ago against the US fiat. So whatever US fiat has lost in those two years, bitcoin has lost another 64% on top of it ;-)

      • medial axis says:

        That’s right. If you bought during the Dec 2017 (FOMO) bubble you lost out. But if you waited a year you’d be up over 80% YoY. We can all pick cherries ;-)

        • cesqy says:

          Bitcoin issues:
          1. Too unstable to be a store of wealth.
          2. Too small to scale to worldwide transactions (21 million bitcoins).
          3. Bitcoin blockchain is an excellent method to record decentralized transactions.

          Digital currency backed by central banks might be the future in a cashless society. The cat is out of the bag.

        • medial axis says:


          1. At present yes but it’s still growing[1]

          2. One bitcoin = 100 million sats (sat = satoshi)

          3. Bitcoin doesn’t disintermediate private banks (we’ll need them before we get mainstream adoption) it disintermediates central banks – as it’s a settlement layer[2] as well as having its own (well known, QE free) monetary policy.

          [1] Nothing grows from zero to stability in a straight line.
          [2] It settles about ever 10 mins. Well, that’s a bit risky. For large sums it’s best to wait an hour (six blocks on top of the one containing your tx)

        • Leser says:

          The underlying problem imo to (1) is pervasive market manipulation – curable with some effort.
          (2) viable cures already exist, e.g. Lightning

          The main risk I see is government interference – they could outlaw it at any moment.

          Agree with your closing comment – sadly things seem to be headed in that direction. So back to square one: buy bitcoin and help improve the ecosystem!

        • nhz says:

          just a few other Bitcoin problems:
          4. outrageously energy intensive, any serious use of Bitcoin or similar crypto currency would bankrupt the planet energetically and destroy the climate.
          5. way too slow transactions to scale up to any serious payment alternative

        • Zantetsu says:

          Leser, lightning is a farce. It requires an exponential increase in trust and chain watching by everyone involved. If it’s working at all, it’s only because early adopters want it to work and are ignoring those fundamental problems.

        • Zantetsu says:

          The only three bitcoin I ever bought were at $33 apiece. Should have bought more :/ … but hindsight is 20/20 as we all know.

          Also, I don’t think I’d really want to keep a significant amount of money in bitcoin given how participating in it is essentially descending into a den of thieves and hoping to come out on the other side with all of your money still in your pockets. I would not trust holding any significant value in any bitcoin exchange.

      • George Kovachev says:

        Actually, it’s slightly worse than that.

        Fundamentally speaking, Bitcoin these days is pretty much like the so called stocks, bonds, derivates – nothing more than digits in a computer database (an obsolete version of BerkeleyDB, to be precise). With one big difference – there is no Fed (or another central bank) to bail out the HODLers.

        That’s the primary reasons why people like Draeper, Roger Verr and all “crypto-visionaires” are trying hard one of the favourite (and the only, available to them) tools of the central bankers – sweet talks/white noise/salt for taste. They’re looking for a greater fool with enough money to buy those digits at their current price (and the increased demand will increase the price), while trying to convince the lesser fools (current HODLers) not to sell – doing so will decrease the price, and the “wealth effect” of owning a bitcoin would be lost.

        Just of curiosity: does anyone truly believes that a unit of something, which is nothing more than digits in a database, worths six times more than 1 oz of gold? And, please, don’t start with the “scarcity” non-sense – that 21 million boundary is just a number in a C header file – easily modifiable by the Bitcoin Core team, easily deployable with the next version of the software.

        • Lisa_Hooker says:

          Tonight I will throw the beans out the window. Tomorrow I will climb the stalk for the magic golden harp.

        • Zantetsu says:

          You do not fundamentally understand the concept of “worth” or “scarcity”. You are 100% begging the question with you final paragraph.

          “Worth” and “value” are defined by the market, not your wishes, hopes, or beliefs. The “market” defines bitcoin as worth $7,400 or whatever currently.

          Saying that the 21 million boundary is “just a number in a C header file” is like saying that the value of a dollar is just “ink on pieces of paper”. Or like saying that New York is fundamentally unsafe because if everyone on the planet simultaneously crowded onto it it would be crushed into the Atlantic. These are theoretical possibilities but practical impossibilities. You would never get the hundreds of thousands of separate actors in bitcoin to simultaneously agree to the change in the C header file.

          Bitcoin is indeed a farce, but it’s because of its technical limitations on the number of transactions per second and the energy cost of proof-of-work as nhz correctly points out. There are going to be cryptocurrencies that solve those problems though eventually.

        • George Kovachev says:

          @Zantetsu: Well, as someone, who participated for a brief time of three month in the development of the Bitcoin Core software – yes, indeed I know nothing about it ;-).

          I agree, that the “market” defines the “worth” of the Bitcoin unit – but those are the same market forces, which define the “worth” of the class C Google stocks for example (BTW, according to Google themselves their face value is 1/10 of cent, not hundreds of dollars, shown on the Bloomberg screen).

          As for “getting the hundreds of thousands of separate actors” to agree with the change – actually, it’s much easier than you think. Nobody is going to ask them.

          You see, one of the biggest falacies is that Bitcoin has no “central authority”. That’s not entirely true – there is such authority, but it’s not financial or political one – the “central authority” here is the team, who designs, develops and maintans the Bitcoin Core software. Most of those “hundreds of thousands of separate actors” either use the pre-compiled binaries, or are using the build scripts, provided with the source code, to generate an executable for their respective platforms. Very few of them actually review the code line by line. They have the option to do so (after all the ‘ware is open source), but very few are doing it.

          So, in order to increase the max number, the only thing the team has to do is to change the value. Without telling anyone. And declare it a mandatory update, because it contains a fix for an important security issue. And that statement doesn’t even need to be true, except for the mandatory update part.

          By the time anyone figures it out (and this usually would happen at the expected time of next halving) most of those actors would be using the new version of the software. And, given the human nature, they won’t roll back to the old version, simply because the first obvious result of that change would be a delay of the reward halving.

          Indeed, Bitcoin was turned into a farce – but that’s mostly because it was never intended to be used as investment asset (and a speculative one at that). If any of those “crypto investors” bothers to read the white paper, he or she shall see that the Bitcoin was intended to be used as medium of exchange, and, may be, as unit of account. But it was never intended as store of value.

          Eventually we end up with a digital currency, accepted by everyone. But Bitcoin is not that currency.

        • Zantetsu says:

          George Kovachev, thank you for the intelligent reply, but we differ in opinion on the possibility of making sweeping changes to bitcoin software like that. If someone made an incompatible change like the one you suggest, their software wouldn’t work with all of the other bitcoin software out there — it would submit transactions that everyone else would reject. It would add a generated bitcoin into its blockchain after all other client software is already enforcing rules that such a block is faulty. The network would not accept it.

          Because the network would not accept it, nobody would bother trying to make that change. It would be pointless.

          You’d somehow have to get everyone to agree to the change by implicitly accepting new software with a different bitcoin limit approximately simultaneously. You would *never* get that to happen. There are too many people involved in bitcoin who would resist it, and you’d fragment the blockchain completely, which nobody wants and would be bad for everyone holding bitcoin, so nobody would even try to do it.

          A better analogy would be to say that you shouldn’t rely on doctors to treat your cancer since every doctor in the world could decide to commit suicide at the same time. And then you’d have nobody treating you. Theoretical possibility, practical impossibility.

        • George Kovachev says:

          @Zantetsu: Well, not exactly everyone has to agree – only the team, who develop and mantains the software. Indeed, getting the entire team to agree on such change is a bit far-fetched, but possible. The rest – they don’t really count, since the people, who manage the mining farms aren’t the same as those, who develop the software. Unless, of course, they fork the software with the old limit. At which point it’ll become a new cryptocurrency (such issues and arguments are known to have happen in the past – that’s how Bitcoin Cash came into existence – the issue there was the size of the block, not the limit, but from tech point of view, there is a little difference – both are just numbers). And if the team agrees on increasing that limit – well, I believe I already explained how it could be done – thanks to the trust the miners have in the dev team; at this point the exchanges and the average users/”investors” – they don’t really count. If anyone led you to believe the opposite – well, it’s actually your choice, and no one else’s.

          But I think you miss the point. The perceived “scarcity” of the precious metals is result of both natural causes (physical availability) and technological limitations (the capabilities of the mining companines to find and mine it). The “scarcity” of Bitcoin (and the other cryptocurrencies for that matter) is completely artifical in nature, chosen by the developer, who was the initial designer of the software. And this means it could me modified. It’s not that difficult from technical point of view; getting everyone that matters on board is another matter.

  12. Chris Coles says:

    There are two factors here that you have not fully taken on board in the above article. That first, primary factor; is hidden in plain sight here: “the Bank of France has warned that large French non-financial corporations, many of them part-owned by the state, have been taking advantage of years of low or negative interest rates to take on dangerous levels of debt.”

    “many of them part owned by the state”.

    Now you seem not to have read this:

    Impediments to resolvability of Banks
    Banking Union Scrutiny
    by Alexander Lehmann
    Economic Governance Support Unit (EGOV)
    Directorate-General for Internal Policies
    PE 634.360 – December 2019

    What you will discover is repeated reference to the phrase . . . “Bail-in”

    All those “non-financial corporations, many of them part-owned by the state” have already bought themselves get out of Jail cards in the form of a fully agreed set of rules that, allow them to take the funds you all have deposited in your bank accounts, and deliver to you a piece of paper, probably saying something like this; herein accept that we have taken your funds under the rules agreed for Bail-in and hereby deliver back to you the agreed share certificate.


    • historicus says:

      The ECB acts at the behest of the central banks of the EU.
      They have decided that to save the failed socialist countries they must dictate at which rate these countries will now borrow, or be paid to borrow.
      Central banking is antithetical to free markets. It is an exercise in Socialism with a back door to globalization.

    • Wolf Richter says:

      Chris Coles,

      You’re barking up the wrong tree. These “non-financial” companies discussed here are NOT banks, and they do NOT take deposits. They’re industrial companies, retailers, manufacturers, utilities such as EDF, etc.

      • Chris Coles says:

        You are correct, but my point was that the two sides of the proverbial coin are connected; when one side goes, so will the other.

      • Lisa_Hooker says:

        Perhaps some of the “non-financial” companies have funds in the banks? So will we sacrifice the viability of the “non-financial” companies to bail-in the banks? If so, what happens to the economies?

  13. Unamused says:


    It’s all a big plan to take money from anyone . . . and give it all the billionaires.

    More or less.

    Historically this situation was avoided by taxing the rich and letting them take their gambling losses. But CBs and federal governments, both controlled by bank cartels, are in the business of enriching the wealthy at public expense, so that’s not going to happen. Instead, they decided to bleed the real economy and play monetary policy games in the misguided attempt to preserve the gains of the investing class, acquired before the 2008 crisis, by replacing those trillions of phony paper wealth with real economic assets.

    It didn’t work because it couldn’t work, and they knew that, but they did it anyway. Since the 2008 meltdown, all that CBs have managed to accomplish is to make a bad situation completely unsalvageable.


    lipsitck on pigs everywhere

    The idea is to get you to kiss the pig. Your problems are even more serious than you thought when the pig refuses to kiss you back.

    the central bankers are the arsonists and then supposedly the firemen

    The “destroy-the-village in-order-to-save-it” approach to macro financial policy.


    I have come up with a partial solution to what is coming

    A partial solution isn’t a solution, but it’s better than trying nothing and being fresh out of ideas, I suppose.


    “buy a little Gold and Silver”

    They’re not productive assets. At most you might be able to exchange them for something that is productive, or at least edible, but not when such things become unavailable. You won’t find a recipe for Roast Shiny anywhere.


    when does the ride stop?

    Late 2026 at the latest. After that things start going seriously downhill. Food riots, old people dying in the streets, that sort of thing.


    Given the facts, and the trends of the last several years, does anybody commenting here really believe this situation is going to improve, and not worsen? Any time soon? Ever?

    Does anybody see any solution or prevention to the coming fiascoes? You’d think that if anybody had one that it might have been identified and implemented by now. Since that hasn’t happened, and things have continued to worsen, you might think that maybe there really isn’t one. You might even think that the plan isn’t to correct the present course of events at all because it’s too far gone, but for TPTB to try to save themselves by throwing everybody else under the bus.


    For a long time I advised people to pay less attention to their investment portfolios and to instead focus on considerations of survival. I haven’t done that in years. The situation has changed since then.

    Now I tell people to stop worrying and just enjoy it while they can.

    • Craig says:


      Silver can be used to purify water.

      • Frederick says:

        It’s one of the most useful elements on the planet Best conductor of electricity, anti bacterial properties so it’s certainly valuable and it’s been considered money for thousands of years Certainly beats the heck out of a depreciating fiat currency with negative interest rates That’s why it’s manipulated lower in price on a regular basis Can’t have people seeing the truth can we?

  14. historicus says:

    The concentration of wealth and the infusing of wealth and the further concentration is why, IMO, this new wealth isn’t making its way into the economy.
    What is better for the economy, one man with 100 million or 100 with one million?
    This run away stock market promoted by central bankers has created a division in the world economy…
    two groups…those who have enough stock, and those who don’t.
    The runup has been artificial, IMO, with the central banks having their hands on the back of these markets.
    Where would we be if the Fed wasn’t injecting the monies each day and month into the system?
    And everyone should ask this question..
    “Why is it that the central bankers pushing for inflation all have inflation protected pensions awaiting them?” Now why would they want that?

  15. Iamafan says:

    Let’s face it, the likely future will be default to those who cannot print. Just remember, it’s only paper. So just prepare yourself accordingly.

  16. Kenny Logouts says:

    Since 2008 we’ve seen rampant immigration issues in “the West”

    Since 2008 we’ve seen a rise of the “PC lefty” stuff in “the West”

    Since 2008 we’ve seen lots of legislation, and actually activity around bail-ins.

    I’d recommend season 19 of South Park (2015 iirc).

    Those opening episodes maybe felt a bit fantastical at the time, but the parody has become reality.
    It’s almost a bit depressing to watch now.

    This is just mass thievery of the simplest kind, applied on a vast scale.
    Distract the victim with one hand while you use the other to take their wallet.

    All undertaken for and by the wealthiest in the (Western?) world.

    2015 + 6 ~ 2021 when the current show stops.
    The money has gone, people are realising.
    The next show comes on which is where all those societal demons that have been generated are blamed, and people turn on each other rather than the otherwise glaringly obvious thief.

    And I can guarantee people will blame each other.

    You only need to see the way people divide on brexit.

    “Brexit caused this” instantly gives the thieves a way to turn people on each other, rather than them.

    • weinerdog43 says:

      “Since 2008 we’ve seen a rise of the “PC lefty” stuff in “the West””

      Oh please. Evidence?

      • Lisa_Hooker says:

        Come to the West and look around, try reading. Your own eyes and ears are the best evidence.

        • Zantetsu says:

          My only disagreement is with the year 2008. It’s been happening for a long time. But really the point of contention is what “PC lefty” means. Would you lump the banning of public smoking into that? Would you include helicopter parenting?

          I tried to volunteer to be a chaperone at my son’s school field trip coming up in two weeks. Turns out I have to get fingerprinted and clearance checked first. WTF is this country coming to. We all want safety but we are losing our humanity.

          “Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety.”

  17. Dean says:

    I’m looking forward to the near future where people who have avoided this insanity can step in and buy assets for pennies on the dollar. Keep your powder dry folks!

    • Frederick says:

      I’m with you Dan Waiting impatiently

      • Bobber says:

        I am impatient as well, but if a person keeps a little in stocks, say 10%-20%, he can benefit a little from the insanity while keeping a large reserve for when things crash. Those small gains are enough to prevent FOMO. You can let the portfolio be and focus on enjoying your non-financial life.

        The worst thing a person can do is switch from a conservative to aggressive mindset at the top of an overpriced market. Central bankers cannot be trusted long term. If you do what they encourage you to do, you wind up losing a ton like in 2000 and 2009.

        • nhz says:

          sounds like picking up pennies in front of a steamroller; not a good idea, maybe unless you have zero capital and every penny counts. If you have 80-90% in reserve (e.g. cash) those pennies would not really help anyway.

    • sc7 says:

      The real estate permabulls told me it was to the moon, Alice! Larry Yun told me so. Memento, socaljim, etc… said rates are going to -4%, can’t wait to get paid for my mortgage!

  18. timbers says:

    You all should stop complaining and just be thankful you have a job. Like the slaves did in pre civil war America. They knew their place you should learn from that.

    • Wolf Richter says:

      That’s kind of what Lagarde said :-]

    • MCH says:

      Don’t worry, when the inevitable collapse happens, we can enact the Warren-Sanders plan. Tax the rich on their existing assets, say on a progressive scale, 50% on anything over 10 billion, and on down for example. Then repatriate the funds to the government projects. They could do that in Europe by isolating assets from Bezos, Ma, Gates, Zuck, and so on, and just outright seize them. That should help in the interim to quiet the masses.

      • timbers says:

        I was thinking something more like equal application of the law – like seizure and forfeiture of assets by local (or not) law enforcement agencies (cops).

        You know, like we Little People are subjected to.

        Just have local law enforcement seize the property. Then judges will rule it’s OK and Zuck just lost a few hundred billion of offshore bank accounts and all, etc and let them spend said forfeited property on their police departments including brand new gas guzzling maxed out SUV’s amongst cops for their own personal use as bonuses for their good performance and reaching forfeiture revenue goals.

        Like they do to us Little People as we speak.

        Let’s give the rich the privileged the same opportunity of living under the same laws us Little Folk live by.

        I wonder how long Zuckerburg would rot in jail once deprived of access to those hundreds of billions of offshore US Treasuries he’s accumulated by not paying the taxes you and I pay?

      • Cashboy says:


        “Tax the rich on their existing assets, say on a progressive scale, 50% on anything over 10 billion”

        Isn’t that what they did in Saudi Arabia recently in effect?

        • nhz says:

          Politicians in Europe especially know that it is far more effective to extort the middle class because there are many more people with a couple 100.000 EUR than billionaires, and it is far more difficult for the middle class to escape such extortion. No politician in the West is going to survive by extorting billionaires like Zuck and his friends – they may promise to do so (like Liz Warren) but it will never happen; instead the taxes will be shifted to millionaires and even lower as soon as they are exhausted.

      • sierra7 says:

        Soooooooo…..what would you do when the inevitable collapse happens??????
        (Caveat: not a fan of any of the candidates)
        What is your solution???????
        Our business world is corrupt; our government is corrupt; our justice system is corrupt; and on and on….along with the probability of an economic collapse which in my opinion this time might just bring on a civil war.
        (By the way, I usually “enjoy” your comments!)

  19. richierich says:

    this article yet again brings out all the doom and gloomers, end of world types, preaching what else, gold, silver etc. They are mostly wrong but never in doubt. Meanwhile the S&P continues to compound while the nabobs of negativity cuddle with their precious metals and underperform the market and get poorer, waiting for the apocalypse which only comes in movies. Keep up the great work.

    • daniel weise says:

      Just in case you are interested,the GDXJ (junior gold miner index) has vastly outperformed the SP 500 YTD. Apparently the Market disagrees with you.

  20. Petunia says:

    I usually think mergers are a terrible idea but the LVMH Tiffany merger looks good to me as a consumer. Most Tiffany buyers are buying the brand, not the look, which has been really stale for decades now.

    LVMH puts out hundreds of products every year and they seem to know what sells. They will probably replace the design team, if there is one, and invigorate the Tiffany brand. I expect good things from this one.

    • Mars says:

      Hi Petunia,
      OT thread
      I know you follow fashion so this made me laugh. For some time Tiffany has spent millions promoting Paloma Picasso as part of the design future of the Tiffany brand.
      I would agree, though, many designs would get an unremarkable response if presented anonymously in the jewelry case at Target.

      • Petunia says:

        I remember when they first hired Paloma, never found her designs compelling enough to buy.

        My sense is that their customers are Asians who buy any expensive brand, or men who think they can’t go wrong buying stuff in blue boxes.

  21. Crush the Peasants! says:

    Take out as much debt as you can for 12 years, live it up, then it will all be over.

    • Unamused says:

      Oh darn. Now everybody’s going to know.

    • Cashboy says:

      Crush the Peasants,

      Most of my young clients appear to be following your financial advise.

      And if you have nothing, you have nothing to lose anyway.

      As I tell people, if you have nothing and no debt, you are in the top 50% of the wealthy in the western world.

      • nhz says:

        Yes, same story in my country. For those without any money (but some income) it has never been a better time to buy a home thanks to the lowest rates ever, and countless subsidies and guarantees. They have nothing to lose and in fact in my country, if you have to sell your home at a loss a government fund will pay all that debt for you – while any home equity gains are untaxed. Most people who are financially illiterate quickly understand what they should do. Even people on social security can buy a home over here, some realtors explain it in their advertisements.

        At the same time, for those who do have money but cannot get a mortgage (e.g. because they don’t have fixed income) it has never been a worse time to buy a home. When you buy cash the best time is when rates are skyhigh (which means prices are depressed and rates can only get lower in future). One of many distorted outcomes: former housing corporation properties (social housing) that cost around EUR 300 for those on social security are now sold in the free market for EUR 350.000 and rented out at EUR 1500 per month; so if you don’t quality for social security you pay 5x more. Continue this policy for a few years and effectively anyone on social security has a 1 million euro nest egg (because they are entitled to keep living there for a small fee, while those with money are forced to spend a million for a similar home, and a lot more for something slightly better). Central banks are making all those poor people millionaires, isn’t it great :)

        • sierra7 says:

          I assume you do not live in the US?
          Be nice if those who comment identify where they do live so that we can get a better understanding of what their comments mean.

        • nhz says:

          @ sierra7:
          I’m in Netherlands; try to point out from time to time but don’t want to repeat it in every reply …

          Yes it’s not USA although I get the impression that California is pretty similar when it comes to politics ;(

        • Zantetsu says:

          nhz, as much as I appreciate your contributions, you have made essentially the same post about the housing market in Denmark (or is it Norway?) about 100 times now.

        • Zantetsu says:

          nhz, just read further and saw that it is the Netherlands. Mea culpa.

  22. UnintendedConsequences says:

    At this point the smart investors know “HOW” this is all going to end, yet difficult to predict “WHEN”. For example, El-Erian’s recent “Fed lose-lose” comments copied and pasted below:

    But El-Erian isn’t confident that cushion is inexhaustible.

    “How do central banks pursue their economic objectives? By pushing up asset prices. By hoping that higher asset prices make us feel wealthier,” he said. “And as we feel wealthier, we spend more. And as we spend more, companies invest more.”

    But guess what. It doesn’t work. And there is collateral damage and unintended consequences. So, what you’re seeing here is basically the Fed pushing on a string. However, the Fed cannot pull back, because if it pulled back it’s worried that it’s going to disrupt markets. And if it disrupts markets, there can be a spillover on the economy.”

  23. Bobber says:

    It is intriguing how an unelected body of central banking officials, directed by private banks, has obtained the power and means to shift wealth to a higher class, under the pretense of a trickle down theory that has been thoroughly debunked as ineffectual, misdirected, and unfair.

    The greatest reverse Robin Hood welfare program of all time is insidiously and successfully kept from public scrutiny, so far at least.

    We had the Great Depression in the 1930’s. The current period may go down as the Great Repression.

  24. Timothy J McLean says:

    My of the comments reflect they believe that we have low inflation in the US and rates will remain in check for the time being. This was my take too until about three months ago. I live in SW Florida and I continue to see annual inflation well above 5% in many sectors including building materials, labor, education, auto insurance and rents. I agree with one of the comments that the Fed will have no choice but to raise rates within the next 12 months due to a pick up in inflation.

    This is coming from someone who has been saying lower for longer since 2012.

    • nhz says:

      I see serious inflation in Europe (officially 2.7% in my country but in reality VAR higher for most people) and I have zero doubt that they will NEVER raise rates seriously again and just keep going until the current financial system crashes. Why would the FED and ECB raise rates if the 0.1% and a big percentage of the voters (e.g. almost everyone with a mortgage) keep profiting from their policies? People who are punished financially no longer count, why worry … all those who profit will keep the current policy going for a bit longer.

      BTW, given the blatant manipulation of inflation statistics and other relevant facts, and the stupidity of the general public, I’m sure the MSM would present real 10% inflation as “too low” 0.5% CPI without blinking. Why raise rates if you can get away with suggesting they are too low?

    • The Shadow says:

      Charts comparing the CPI of today’s estimates versus the old methods when it was more of a non-rigged ‘market basket’ of goods that stayed constant and thus really came closer to measuring inflation.

      The pre-Reagan method of measuring the CPI appears to be just a shade under 10%.

    • Cashboy says:


      I cannot see how the Central Bank can raise interest rates because governments, corporations and private people could not service their debts anymore.

      I think the only solution to clear the mess up would be if Donald Trump was re-elected and closed down the Federal Reserve.
      The other solution would a be to create a world war. I was expecting Hillary Clinton to do that against Russia if she had become president.

      A war technically would be the solution:
      1) People wouldn’ worry about their debt or value of savings in a bank account
      2) It would be a great distraction and excuse for banks and government
      3) It would help get rid of the pension deficit
      4) It would create jobs during the war and then after rebuilding.
      5) The elite would remain wealthy and opportunities to get assets from the dead’s estates.

  25. Rcohn says:

    Interest rates have tubed even as current deficits and the prospect for higher and higher Federal deficits appear inevitable , so a few concepts follow logically.
    1. Federal Deficits do not matter, so all governments will run larger and larger deficits in the future.
    2. Since Federal deficits do not matter , then there will be no governor on Federal government spending; among other concepts , this means that the Federal government will absorb all local deficits ,I. E. state and local pension plans in the future.
    3.Since Federal deficits do not matter , then there is no reason for income taxes , so income taxes will be eliminated, except maybe those on the very rich as a redistribution policy.
    4.Interest rates are an indicator of future rates of return.Those who borrow money at very low to negative interest rates have expected rates of return in the future that ALSO will be very low to negative.This translates into very slow economic growth
    5.Corporations will continue to increase leverage by borrowing money at the current low rates. Inevitably the world will enter a period where many corporations will not be able to service their debt. Mass corporate bankruptcies will result UNLESS the Federal government steps and provides direct financing.
    6.The INEVITABLE result will be pressure on the dollar. This also means that other currencies backing large deficits will be in the same boat.

    • joe says:

      A good start, but don’t just worry about the dollar, continue extrapolating. Corporate bankruptcies, lost jobs, defaulted pensions, increased homeless, increased inflation of necessities, defaults on car loans and mortgages, increased taxes, …. Leading to what?

    • Bonnie says:

      Remember also that the Fed gets to create money out of thin air, and completely outside of the government ‘budget’ that our elected Representatives pretend to vote on. Which means its completely “off-budget” in terms of the official deficits, but which does effect inflation rates. (especially in the luxury goods markets).

      Right now, the Fed is waving its magic wand to create hundreds of billions of dollars a week which it pumps out to the Wall Street casinos, without even telling the public which casinos have made bad bets and are in such trouble that they need this huge amount of money … even in the good times with stock markets hitting record highs.

    • The Federal government (and its deficits) are poison most states want nothing to do with Washington. The EU can run NIRP and tighten credit, and maybe this is what LaGarde will do. The EU and the IMF just got a lot closer. The US who can say? The center gets a lot smaller, the president becomes “the king of infinite space in a nutshell.” 911 delayed a number of secessionist movements.

      • Rcohn says:

        No doubt , you are correct that a number of states want little to do with Washington.But NJ.and Ill. are just the next recession away from a de facto if not de jure pension default . And if oil prints into the 30s, even TX starts experiencing big pain.
        I also have read about the so called “secessionist “movements .The argument facing such movements is that all states get money from the FEDs and NONE want to give it up .
        Just read the excellent book “Cadillac Desert” about the history of water development ( mainly in the West).
        The history of dam development in the country is one in which politicians in certain states could basically veto water projects in other states, but chose not to do so because these politicians were in turn bribed by water projects in their states. This dispute the fact that the vast majority of these projects were NOT economic and were basically subsidies for large scale irrigation. Examples of such policies are farmers subsidized to grow cotton in the Delta of Northern California, while at the same time cotton growers in Louisiana are being paid NOT to grow cotton.Without the HUGE subsidies provided by numerous water projects in Northern Cal. , cotton is not economic in Delta.

        • nhz says:

          Very similar to most of the secessionist movements in Europe: they want to be independent (and not pay taxes to the larger country or Europe) but still keep their huge EU subsidies or the privilege of lending at zero rates by keeping the euro, or sometimes assume they don’t have to pay the huge Euro debts when they gain independence. Basically they want to have their cake and eat it too.

  26. joe says:

    Thanks Wolf, I got the mug. It’s not an Octoberfest Masskrug size so I may have to get one or two more.

  27. Line & Distance says:

    The world has a Real Estate Developer in a position of power where he can at least try to influence the central banks. He certainly has effected Fed policy, and while an American President certainly can’t give orders to the ECB, he can still talk and influence them.

    A Real Estate Developer has several views when it comes to loans. 1) a RED thinks the application process should just be a signature where he says he wants the money and promises to pay it back. 2) a RED thinks the interest rate should be zero, and is probably salivating at the idea of negative interest rates. RED heaven would be to take out loans and get paid to do so. 3) RED’s prefer to structure their businesses as a bunch of small companies, one per development, so they can later declare bankruptcy and have their other assets protected. REDs love to break agreements when its to their benefit.

    Having a RED in charge of monetary policy is a suicidal thing to do to an economy. A RED will highly distort that economy to get an advantage for REDs.

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