How do negative interest rates work? Destruction of Savers Is Main Side Effect

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How do negative interest rates work?

How do negative interest rates work?

Imagine if I came to you with a deal.

Give me $10 today and I’ll return $9 to you in a decade or so.

No way right?

This is happening all around the world and on an increasing basis.

Maybe you didn’t go to Harvard Business School, but perhaps you recall an early lesson from your Junior Achievement class that tells you this is not how it’s supposed to work.

You are supposed to put your money in the bank and be rewarded with interest. This is supposed to be wiser than trading your precious allowance at the candy store for an awesome, yet fleeting sugar rush.

Negative interest rates and even super-low interest rates are only going to encourage more government borrowing. This, in turn, allows politicians to make all kinds of grandstanding promises — until one day when the debt pile gets too big, interest rates return to historically normal levels, and taxes go up to pay for it all. Full Story

How do negative interest rates work; Investopedia provides some ideas

Bonds trading in the open market can effectively carry a negative bond yield if the price of the bond trades at a sufficient premium. Remembering that the prices of bonds change inversely with a bond’s yield, the higher the price of a bond, the lower the yield. At some point, the price of a bond can increase sufficiently to imply a negative yield for the purchaser.

It was estimated in 2016, that as much as 30% of the global government bond market as well as some corporate bonds, was trading on a negative yield. Some of the reasons investors might be interested in these negative-yielding bonds include those investors such as central banks, insurance companies and pension funds, who have to own bonds, even if the financial return is negative. This is to meet their liquidity requirement, and when borrowing, they can also pledge as collateral.

Another reason is that some investors believe they can still make money even with negative yields. For example, foreign investors might believe the currency will rise, which would offset the negative bond yield. Domestically, investors might expect a period of deflation, which would allow them to make money through using their savings to buy more goods and services. Full Story

Central bankers worldwide lay the path of destruction and misery

The Fed is on mission possible, and that mission is only possible because the masses have given up; they feel that the Government and the Fed will take care of them. Even though all the evidence to date illustrates that the Fed is only out to wreak havoc on the working middle class.

Sweden has further lowered rates from -0.35 to -0.5 in their bid to hit its pie in the sky target of 2% inflation. Switzerland and Japan have also embraced the negative rates bank wagon, and a host of European nations as illustrated by the chart below have embraced the devalue or die era.

Fed’s out to destroy Middle Class with negative rates

How do negative interest rates? Destruction of Savers Is Main Side Effect

It is just a matter of time before this dance with negative rates becomes a Worldwide hit and central bankers around the world are forced to implement these destructive policies.  In such an environment,  resistance is futile, and that is why we are sure it’s just a matter of time before the Fed reverses course and starts to lower rates.

Our economic recovery is a lie and the facts below easily illustrate the depth of this lie
  • 76% of families are living from paycheck to paycheck.
  • According to CBS 33% of families earning $75,000 per year; this phenomenon is not restricted to just the so-called working poor.
  • While the official unemployment rate is currently below 5%, the unofficial rate is close to 23% according to shadow stats.

We are in the midst of a full-blown currency war as a nation after nation jumps on the negative interest bandwagon.  There is no stopping this destructive race to the bottom; a nation can only hope to slow down the destruction of their currency

The key to the markets are the masses, and the masses believe that the Fed and the government can solve their problems. Until they think otherwise, nothing is going to change, and the outlook will continue to worsen.

Central bankers worldwide are on a mission to fuel another bubble. Fed’s out to destroy Middle Class with negative rates

As you can see from the chart above,  there is a direct correlation between rates and property prices; the lower the rate, the faster the prices rise. Hence, it goes without saying, that negative rates will fuel a housing bubble.

Game plan

As central bankers are going to force you to speculate  you might as well have a game plan in place before negative rates make their debut in the U.S.  The main driving force behind the markets are emotions (otherwise known as Mass Psychology); understand this and you will have a better understanding of how the markets operate and won’t have to place your faith in shills on Wall Street who openly market themselves as experts.

Compile a list of blue-chip stocks or stocks that are showing strong rates of growth. Two good metrics to look for would be strong quarterly earnings growth rates and or strong quarterly revenue growth rates.  Some companies to consider are HRL, PPC, OCLR, FB, MSFT, AMZN, RTN, OA, etc.

 

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