The Secret War On Cash
Central bankers are declaring war on cash for one reason only; they want to punish savers and reward speculators and in the process destroy the middle class. The only way to maintain the illusion that all is well is to get the average Joe to embrace this illusory economic recovery and what better way to achieve this than by forcing him/her to speculate in the markets. The best way to force savers to speculate is to punish them for saving, and that is exactly what central bankers hope to achieve via negative rates.
When savers start getting charged for saving money, they are going to withdraw this money and try to find alternative investments. Some will buy safes to hold the cash, and some will turn to Gold but the vast majority will look for something to invest this money into and for most this will be the stock market. In pushing savers to speculate, the Fed will have created the equivalent of several QE’s in one shot. There are trillions of dollars sitting in the money market, savings and checking accounts. A significant portion of these funds will find its way into the markets. Additionally, a significant number of pension funds will be forced to speculate as investing in treasuries is soon not going to produce any decent returns at all. A flood of money is waiting to hit this market as a result of the Fed’s nefarious plan to force rates into negative territory.
The Secret War On Cash: savers punished speculators rewarded
Germany became the 2nd G-7 nation after Japan to issue a 10-year bond with a negative yield. Soon every member of the G-7 club will be forced to take a similar path. There is no choice here; resistance is futile, and the only option now is to join the “devalue or die club”. The yield on Germans 10-year bonds dropped t0 -0.05% for the first time and hit a record low of 0.2% before edging higher. Before this experiment is over rates will probably drop to -3 to -5%.
“This auction is a symptom of what we’re seeing globally,” said Orlando Green, European fixed-income strategist at Credit Agricole. “We are in a positive market environment for bonds right now and investors remain relatively long German Bunds.”
“It would be the icing on the cake for investors who have come to accept that you don’t get money back on your investment,” said David Schnautz, an interest rate strategist at Commerzbank, referring to a negative yield at the German auction.
In Switzerland the outlook is even worse, the yield is negative across the spectrum; recently it sold bonds that mature in 2058 for negative 0.023%
Even nations like Italy and Portugal which are in dire straits can sell bonds at extremely low rates; sure the rates are not negative, but it was not too long ago when these two countries were having a hard time selling anything. Now people are willing to purchase their riskier bonds because of the allure of slightly higher yields. We suspect that these two countries will eventually be in a position to sell bonds at negative yields.
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