New and Greater NIRP!

Welcome To The Currency War, Part 21: Japan Goes Negative; US To Return Fire In 2016

by John Rubino on January 30, 2016

… Two weeks of falling share prices and the European and Japanese central banks go into full panic mode. The ECB promised new stimulus — which the markets liked — and then BoJ upped the ante with negative interest rates — which the markets loved. …

… As for gold, there are now $5 trillion of bonds and bank accounts that cost about the same amount to own as bullion stored in a super-safe vault — and which cost more than gold and silver coins stored at home. Compared with the 5%-6% cash flow advantage that bonds have traditionally enjoyed versus gold, NIRP can’t help but lead savers and conservative investors to reconsider their options. In other words, what would you rather trust: A bond issued by a government (Japan, the US, Europe — take your pick) that is wildly-overleveraged and acting ever-more-erratically, or a form of money that has never in three thousand years suffered from inflation or counterparty risk? At some point in the process, a critical mass of people will get this. …

(So gold will rise, but probably not right away, because first,) another round of lower interest rates and faster money printing will, other things being equal, raise the dollar’s exchange rate (so gold becomes cheaper in dollar terms. But,) US corporate profits are already falling because of a too-strong dollar … . Bump the dollar up another 10% versus the euro, yen and yuan, and US corporate profits might fall off a cliff. The inevitable result: Before the end of the year, the US will see no alternative but to open a new front in the currency war with negative interest rates of its own. (Then gold should rise. Watch for it! In the meanwhile won’t folks buy utilities, other dividend-paying stocks, and preferred shares? Of course in the meantime, personally, I think the stock market is now in a downtrend. Chartists will agree, since the S&P failed to attain its 20 month exponential moving average by Jan 30. I didn’t check other indices, though.) …

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Biding my time in central ms ... yours too, if ur reading this.
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