The Phaserl


Sovereign Debt – What Could Go Wrong?

by Gary Christenson, Deviant Investor:

It has been reported that about $10 Trillion of sovereign debt “yields” negative interest. Assume total global sovereign debt is about $60 Trillion.

Therefore, about one-sixth of all sovereign debt has negative interest rates. This brings to mind a few questions.

  1. Do negative interest rates sound absurd, even insane?
  2. Would bankers and central bankers in 2012 have believed that interest rates could be pushed so low they actually went negative?
  3. Does anyone see a problem with negative interest rates?

Let’s review.

  • Central bankers assure us they want price inflation and want to avoid deflation. They create the desired price inflation by “printing” currencies to inflate the total currency in circulation and thereby devalue their currencies.
  • Governments support this process as they can finance profligate spending at minimal or negative interest rates.
  • Governments are deeply in debt, going even further in debt each second, and have no plan or intent to balance budgets, pay down debt, or even reduce deficit spending.
  • Governments assure us they will repay their debts by borrowing even more currency, or by “printing” the needed currency, which most assuredly will be worth less in buying power than when their initial debts were created.
  • We pretend this is fine and extend the insanity. We experience aggressive implementation of bad policy that is bankrupting the middle class, destroying pension plans, increasing wealth disparity, continually devaluing currencies, and punishing savers around the world that pushes us into a bleak abyss.

Examine the following chart of the US 30 Year Treasury bond from about 1980. I have drawn blue cyclic vertical lines every 91 months that, with one exception, point to the highs.

Date Cycle High        Date T-Bond High

Mar. 1986                   Apr. 1986                 off 1 month

Oct. 1993                   Oct. 1993                 on

May 2001                   Nov. 2001                off 6 months

Dec. 2008                  Dec. 2008                on

July 2016                    ?

The black arrows indicate a steep rise in T-Bond prices starting from lows several years before the cyclic highs. The current 2014 low to 2016 high looks similar to the 1984 low to1986 high.

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1 comment to Sovereign Debt – What Could Go Wrong?

  • Ed_B

    “Sovereign Debt – What Could Go Wrong?”

    Other than just about everything? lol

    We can all think of about 20 trillion reasons why things go wrong when financially incompetent people are allowed to make financially irresponsible decisions.

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