Could New Zealand interest rates end up negative eventually as well?

“Gross wrote that more than $10 trillion in government bonds actually have NEGATIVE yields, and that interest rates are at the lowest levels in financial history.

For example, the British government just issued its lowest-yielding bonds since 1694.

This has very dangerous implications.

Goldman Sachs recently calculated that a mere 1% rise in US Treasury yields would trigger over $1 trillion in losses, exceeding all the losses from the last crisis.

(Bear in mind that interest rates need to rise by at least 3x that amount just to reach their historic averages… so this is entirely plausible.)

Most of those losses would be suffered by Western banks, the majority of which have insufficient capital to withstand such a major hit.

Gross describes this potential risk as a ‘supernova’.

…Remember that a supernova is an ultra-bright flash of light that results when a star explodes at the end of its life.

The explosions are so powerful that astronomers can see these incredible stellar events even from distant galaxies.

In 2015 the brightest supernova ever recorded was found in a galaxy some 3.8 billion light years from earth.

The supernova was over 500 BILLION times brighter than our sun. Incredible.

But given the star’s extraordinary distance from our planet, the explosion actually occurred 3.8 billion years ago… a long time ago in a galaxy far, far away.

It took all that time for the light from that supernova to reach us.

That’s what’s happening now in our financial system.

The financial supernova happened years ago. But the light… and the consequences… are finally starting to reach us.”

“Increasingly, central banks themselves are being blamed.

This only means one thing to us. Central banks are being blamed for a reason.
And the plan is to realign them. And probably combine them.

Out of many, only a few. The explanation will be that the banks are not big enough. Or that there are too many of them and the numbers need to be reduced.

…This time perhaps, the damage will be so significant and the chaos so severe that central banks themselves will be blamed. Institutionally, this has not happened before in the modern era.

Those who have the power to rearrange the system will only cast blame in this direction if they intend to generate a major realignment.

We’ve already pointed out that various unsigned mega-trade agreements like TIP are ushering in a new kind of international operating system.

This is one we have called “corporatism,” in which various corporations will gradually accrue more power than nation-states themselves. The leading figures of the future are to be technocrats, highly competent and entirely subservient to the new system.

Within this context it could be that central banking is about to be rearranged as well.

First the central banks – and the larger monetary system – will be blamed. Then the monetary system will be reconfigured.

Source.

“1. Interest rates went to zero because economic growth went to zero.

…Interest rates and rates of growth are related: a positive interest rate is little more than a bet that the future is going to be bigger and more prosperous, enabling people to pay off the debts with interest. This is an obvious point: if your income increases, it becomes easier to repay your debts; if it stagnates, it becomes harder; if it shrinks, it eventually becomes impossible.

2. Once you are faced with a continuously shrinking economy, just holding interest rates at zero is not sufficient to forestall financial collapse. The interest rates must go negative.

…Australia has amassed a huge pile of debt—over 120% of GDP—and most of it is mortgage debt on overvalued real estate. Now that Australia’s economy, which was driven by commodity exports to China, has tanked, a lot of this debt is being turned into interest-only loans, because Australians no longer have the money to repay any of the principal. But what if they can’t make the interest payments either? The obvious solution is to refinance their mortgages as interest-only at zero percent; problem solved! Of course, as conditions deteriorate further, the Australians will become unable to afford taxes and utilities. Negative interest rates to the rescue! Refinance them again at a negative rate of interest, and now the banks will pay them to live in their overpriced houses.

3. Are you starting to see how this works? Whereas before you had to be careful about taking on debt, and had to have a plan for how you will repay it, with negative interest rates that is simply not a consideration. If your debt pays you, then more debt is always better than less debt. It no longer matters that the economy continuously shrinks because now you can get paid just for twiddling your thumbs!

But are there any unintended consequences of negative interest rates?

…The unintended consequence of negative interest rates is that they destroy money. This is true in an entirely trivial sense: if you deposit x dollars at -ρ% annual, then a year later you will only have x(1-ρ) dollars because xρ dollars has been destroyed. (In case you prefer to count on your fingers and toes, if you deposit $10 at -10% annual, then a year later you will only have $9 because $1 has been destroyed.) But what I mean is something slightly more profound: negative interest rates erode the very concept of money.

Negative interest rates are an excellent idea—and perhaps the only way to keep the financial game going a bit longer—but, given these unintended consequences, they are also a terrible idea. The bankers know that. They want to preserve their cult’s status, and constantly talk about raising interest rates. But they haven’t yet, because they also know that just a small increase will result in trillions of dollars of losses, triggering widespread business failures and ushering in the Greatest Great Depression Ever. This is not a problem for them to solve; this is a predicament. They will delay and pray, and make pronouncements loaded with keywords designed to please the high-frequency trading algorithms that are in charge of artificially levitating the “free market” with judiciously timed injections of “free money.” But in the end all they can do is act brave, wait for a distraction and then… run for the exits!

And your job is to make it to the exits before they do.”

Source.

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