Implode-Explode Heavy Industries news feed http://implode-explode.com/ Tracking the many faces of the global credit implosion. en-us iehi-feed-64944 Mon, 16 Sep 2019 22:24:18 GMT Donald Trump is a deeply stupid man who routinely gets his ass kicked on the world stage http://implode-explode.com/viewnews/2019-09-16_DonaldTrumpisadeeplystupidmanwhoroutinelygetshisasskickedonthewo.html Trump wanted a trade war with China. Because he thought he could bluster and bully and get his way. But like the rest of the world, China is laughing at Trump, when they're not scratching their heads because Trump is so deeply stupid, and his administration so profoundly incompetent that China doesn't even know with whom to negotiate. But Trump got his trade war. Which he is losing. Because he is a deeply stupid man.

Trump's trade war already has cost 300,000 American jobs. And every time he opens his mouth about China, the American stock markets get spooked. And then after threatening to escalate his trade war, Trump backed down, and now desperately wants to find a way out of yet another crisis that is entirely of his own making. Because he has no idea what he's doing. Because he is a deeply stupid man who routinely gets his ass kicked on the world stage.

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iehi-feed-64941 Sun, 15 Sep 2019 23:24:23 GMT The Trump Admin's Fannie and Freddie "Reform" Plan is A Cronyism Rehash http://implode-explode.com/viewnews/2019-09-15_TheTrumpAdminsFannieandFreddieReformPlanisACronyismRehash.html It's official: The Trump administration has a plan to deal with mortgage giants Fannie Mae and Freddie Mac -- by returning them to the same quasi-governmental form that set them up for failure in the 2008 financial crisis. If executed, it's likely to be a win for a small coterie of hedge funds, and a big loss for everybody else.

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There are better options. For example, Fannie Mae and Freddie Mac could be merged into a single, fully government-owned corporation that would transfer most of its credit risk to private investors, retaining just the catastrophic risk that only the government can bear. This would get private capital involved without letting it so easily shift risk to taxpayers. Pricing the guarantee correctly would be easier. This in turn would promote more competition from completely private lending channels. As it happens, Fannie Mae and Freddie Mac have already been moving in this direction, issuing special credit-risk-transfer securities and creating a common mortgage-securitization platform.

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iehi-feed-64939 Fri, 13 Sep 2019 22:58:40 GMT In Our Insane System, It Harms The Working Poor When They Save For Retirement http://implode-explode.com/viewnews/2019-09-13_InOurInsaneSystemItHarmsTheWorkingPoorWhenTheySaveForRetirement.html ... most low-income workers receive benefits from one or more government transfer programs. Because many government programs have means tests, low earners who build even modest savings could disqualify themselves for thousands of dollars in government benefits.

An Urban Institute analysis found that for a married couple with two children, increasing the household's liquid assets from below $1,000 to between $1,000 and $2,000 would reduce annual benefits from means-tested transfer programs by almost $3,000. IRAs generally count as liquid assets because they can be readily converted into cash (with a penalty), though states have some leeway on how to apply means testing.

There's another risk: once low earners see their take-home pay reduced via automatic enrollment, they may borrow to maintain their standard of living. Recent research found that when federal employees automatically enrolled in their 401(k)-type retirement plan, employee contributions indeed rose. But four years following auto-enrollment, there wasn't any statistically significant increase in those employees' net worth. While the researchers' data were incomplete, the results hinted that less-educated workers may have borrowed more via higher credit cards, auto or mortgage loans. State auto-IRA plans will enroll many more low-wage workers than the federal government plans, so states should investigate how these employees' total household finances react, not simply laud increases in retirement plan balances.

Does this mean states should abandon their auto-IRA plans? No. But they need to rethink the idea that everyone should be saving for retirement at all times of their lives, regardless of income. It just doesn't work that way.

So glad to see this coverage, finally. One of many examples of how the "conventional" financial advice and assumptions do not apply to the large and growing segment of the population that has fallen out of, or cannot attain "middle class" or better status.

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iehi-feed-64935 Fri, 13 Sep 2019 15:56:05 GMT Gold tallies a back-to-back gain after ECB unleashes basket of easy-money measures; Fed under pressure http://implode-explode.com/viewnews/2019-09-13_GoldtalliesabacktobackgainafterECBunleashesbasketofeasymoneymeas.html Gold futures marked a second consecutive gain Thursday after the European Central Bank cut eurozone interest rates and delivered a batch of measures intended to boost the region's sluggish economy -- bullish moves for bullion. The ECB cut its deposit rate further into negative territory, decreasing it by 10 basis points to negative 0.5%, while also announcing it would restart its monthly bond-buying program as it attempts to juice inflation and European expansion.

"Gold certainly welcomed the ECB stimulus," said Craig Erlam, a senior market analyst at Oanda. "Ultimately, global easing like we're seeing now has been bullish for gold and that's exactly what we're seeing right now."

December gold on Comex gained $4.20 an ounce, or 0.3%, to settle at $1,507.40 an ounce ... Silver for December delivery, meanwhile, added nearly a penny, or 0.04%, at $18.177 an ounce...

"Central banks around the world have been easing, and will continue to do so, and that's why gold has been making such strides higher with only modest corrections along the way," Erlam said in a market update.

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iehi-feed-64934 Fri, 13 Sep 2019 15:25:57 GMT Trump Is Pushing the U.S. Toward Negative Interest Rates http://implode-explode.com/viewnews/2019-09-13_TrumpIsPushingtheUSTowardNegativeInterestRates.html ... what Trump is saying is, "Boneheads, lower the interest rates down to zero so that we can refinance the United States' debt and feel wealthier. In fact, lower the rate down to negative." So that's his whole purpose first of all. Treasury debt under Trump has grown by around $2.6 trillion already.

You might know that I have an opinion that under every eight-year president in the United States, the national debt doubles. It's been that way roughly back to Reagan. So we'll see if that holds true with Trump. He's well on his way

... the interest rate should compensate you for the risk of loaning to the nation. And now those rewards for loaning money have gone down so low that they've actually gone negative where it's a privilege to loan money to a country.

I'm not so sure that in the long run that holds up. But it is the case right now. And I think the U.S. is going to be the next one to follow.''

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iehi-feed-64930 Thu, 12 Sep 2019 15:11:53 GMT ECB Blinks; Revives QE and Cuts Rates Deeper Below Zero http://implode-explode.com/viewnews/2019-09-12_ECBBlinksRevivesQEandCutsRatesDeeperBelowZero.html The European Central Bank cut interest rates further below zero and revived bond purchases after President Mario Draghi overcame critics of his stimulus policies to make a final run at reflating the euro-area economy.

The ECB reduced the deposit rate to minus 0.5% from minus 0.4%, and said it'll buy debt from Nov. 1 at a pace of 20 billion euros ($22 billion) a month for as long as necessary to hit its inflation goal.

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The ECB changed its guidance on interest rates to say they'll stay at present or lower levels until the outlook for inflation "robustly" converges to its goal of just below 2%. It previously expected borrowing costs to stay unchanged until mid-2020. It also scrapped a 10-basis point rate premium previously attached to its long-term loan program.

The actions prompted U.S. President Donald Trump to tweet that the ECB is "acting quickly" while the Federal Reserve "sits, and sits, and sits." That's in line with his strategy of calling on the Fed to cut rates aggressively. The Fed is likely to lower borrowing costs next week for the second time this year, as central banks around the world ease to combat the spreading weakness.

Apparently no recessions will be allowed. Astounding.

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iehi-feed-64921 Thu, 05 Sep 2019 20:01:11 GMT Alan Greenspan says negative rates will spread to US; Hat-tips Gold http://implode-explode.com/viewnews/2019-09-05_AlanGreenspansaysnegativerateswillspreadtoUSHattipsGold.html It will not be long before the spread of negative interest rates reaches the U.S., former Federal Reserve Chairman Alan Greenspan said.

"You're seeing it pretty much throughout the world. It's only a matter of time before it's more in the United States," Greenspan told CNBC's "Squawk on the Street" on Wednesday, adding investors should watch the 30-year Treasury yield.

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He added that gold prices have been surging recently because people are looking for "hard" assets they know are going to have value down the road as the population ages. Gold futures are up more than 21% in 2019 and are trading around levels not seen since 2013.

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iehi-feed-64915 Wed, 04 Sep 2019 15:09:26 GMT OxyContin maker Perdue prepares 'free-fall' bankruptcy as settlement talks stall http://implode-explode.com/viewnews/2019-09-04_OxyContinmakerPerduepreparesfreefallbankruptcyassettlementtalkss.html OxyContin maker Purdue Pharma LP is preparing to seek bankruptcy protection before the end of the month if it does not reach a settlement with U.S. communities over widespread opioid litigation, three people familiar with the matter said, after some states balked at the company's $10 billion to $12 billion offer in August to end their lawsuits as part of a negotiated Chapter 11 case. 

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Strong opposition from some attorneys general such as those in Massachusetts and New York emerged last week after confidential discussions on Purdue's settlement talks became public in media reports, with Connecticut's calling for Purdue to be "broken up and shut down," and sold in parts. Their main sticking point is how much Purdue's controlling Sackler family will pay, the people said.

Purdue faces more than 2,000 lawsuits from cities, counties and states alleging it helped fuel the U.S. opioid epidemic, and Reuters reported in March that the company and family began exploring bankruptcy options for Purdue to halt lawsuits and attempt to resolve litigation with plaintiffs rather than fight every single case.

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iehi-feed-64908 Wed, 04 Sep 2019 00:10:55 GMT Global Economy is Fracturing Along Deep Faults http://implode-explode.com/viewnews/2019-09-03_GlobalEconomyisFracturingAlongDeepFaults.html What has investors so rattled? There are long-term factors in play, like demographic trends and a slowdown in technological change. But what seems finally to have dawned on the markets is that globalization is no longer supported by the combination of investor-friendly economic policy and congenial politics they have long taken for granted.

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So incoherent is the Trump administration's economic policy that no lesser a figure than Bill Dudley, a former president of the Federal Reserve Bank of New York, has said that America's central bank should treat the prospect of President Trump's re-election as a threat to the United States and the world economy. Mr. Dudley argued that the Federal Reserve chair, Jerome Powell, should refuse to cushion the effects of Mr. Trump's protectionism through further interest rate cuts. If the president's bluster sets off a recession, so be it. At least the Fed would not help usher in a second Trump term.

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Though the West still pays lip service to the cause of "market reform," it has come to depend on Beijing's maintaining its grip. But there's an unavoidable question: What are the political consequences of a growing reliance on Beijing's control over the Chinese economy? The question could be dodged when it was assumed China would converge with the West. Now both parties in Congress pose it in geopolitical terms -- key Democrats have pivoted to viewing China's economic growth as a threat to American security.

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Even if a bloody showdown is avoided, the outlook is disconcerting. Beijing has made clear with its bullying of the management of Cathay Pacific that Hong Kong-based multinationals are no longer exempt from Chinese pressure. Large corporations that chose to locate in Chinese territory and profit from China's growth will be expected to play by the Communist Party's rules.

The prospect of a world economy divided among a sclerotic Europe, a nationalist United States and an authoritarian China is a gloomy one.

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iehi-feed-64901 Tue, 27 Aug 2019 22:30:09 GMT interfluidity: Predatory precarity http://implode-explode.com/viewnews/2019-08-27_interfluidityPredatoryprecarity.html The Boston Consulting Group may be charging $33,063.75 per week for the services of a single kind-of-bright conformist straight out of business school. But that kid, he isn't getting paid $1.7M a year. He's probably "only" paid 10% of that. From that take, his managers and their managers, their assistants and his, not to mention of course the firm's shareholders, are all getting a piece of that sweet government slop. And all those guys and gals, they are living in places like Arlington, VA, and some of them have families and mortgages on houses they indebted themselves perhaps millions of dollars to inhabit.

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In societies in which the lives and prospects of the rich and less rich are not so divergent, people can afford to be a bit less rich. After all, even in the United States, the problem is not scarcity in a straightforward economic sense. We can build, to a first approximation, as much great housing as we want. The skills required to care for and educate kids are reproducible. They could be elastically and economically supplied. The scarcity of a slot at Harvard (and that slot's many antecedents, all the way back to birth) has little to do with some ingrained incapacity to educate wonderful teachers.

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In a stratified, liberal capitalist society, the ability to command market power, to charge a margin sufficiently above the cost of inputs to cover the purchase of positional goods, becomes the definition of caste. When goods like health, comfort, safety, and ones children's life prospects are effectively price-rationed, individuals will lever themselves to the hilt to purchase their place. The result is a strange precariot, objectively wealthy, educated and in a certain sense well-intended, who justify as a matter of defensive necessity participation in arrangements whose ugliness they cannot quite not see. In aggregate, they are predators, but individually they are also prey, and they feel embattled. So long as the intensity of stratification endures, they will feel like they have little choice but to participate in, even to collude to entrench, the institutions that secure their market power and their relatively decent place.

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iehi-feed-64898 Tue, 27 Aug 2019 02:10:58 GMT The Next Recession Will Destroy Millennials http://implode-explode.com/viewnews/2019-08-26_TheNextRecessionWillDestroyMillennials.html Cost pressures have also made it difficult or impossible for Millennials to save or invest. The share of Americans under the age of 35 who own stocks has meandered down from 55 percent in 2001 to 37 percent in 2018, in part because employers are less likely to offer retirement-savings plans and in part because Millennials have nothing left over at the end of the month to put away. Virtually all members of the cohort are "not saving adequately," experts warn, and two-thirds of Millennials have zero retirement savings. This means that Millennials have benefited not a bit from the decade-long boom in stock prices, as their parents and grandparents have.

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The next recession--this year, next year, whenever it comes--will likely make that Millennial disadvantage even worse. Already, Millennials have put off saving and buying homes, as well as getting married and having babies, because of their crummy jobs and weighty student loans. A downturn that leads to higher unemployment and lower wages will force Millennials to wait even longer to start accumulating wealth, making it far harder for them to accumulate any wealth at all. (Compound interest is magic, after all.) Their trajectory, already terrible, might get even worse.

And Millennial suffering won't just hurt Millennials. There is accumulating evidence that the economy is more sclerotic and slower-growing than it might be if the Millennials were able to buy homes, have families, start businesses, and spend like other generations--if the young were not existing just to pump up asset values for the old. Which reminds me--there's one generation that might fare even worse than Millennials: Generation Z.

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iehi-feed-64894 Fri, 23 Aug 2019 22:14:38 GMT Negative interest rates are coming and they are downright terrifying http://implode-explode.com/viewnews/2019-08-23_Negativeinterestratesarecomingandtheyaredownrightterrifying.html ... negative rates are being normalized by economists, bankers, and commentators. Worst, I have a funny feeling this will end badly. Negative interest rates have all the hallmarks of serious trouble for the financial markets; an anomaly growing in scale which seemingly came out of nowhere that is under-recognized, poorly understood and dismissed as not consequential. (Flashing red lights here.)

In the U.S. we aren't particularly aware of negative rates because they haven't made their way to our shores ... perhaps yet.

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in Europe, it was postulated that negative rates would never fly in the consumer sphere in terms of banks paying back depositors less than they put in their savings accounts, but that's now changing. Banks in Denmark and Switzerland are now charging customers to hold deposits. And on the flip side, and also in Denmark, mortgages with negative rates are available. That's right, you get a mortgage from the bank, and the bank essentially pays you each month. A three-year adjustable rate mortgage priced at negative .28% there recently.

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What would happen if rates go negative in the U.S.? Who knows. Allianz Chief Economic Adviser Mohamed El-Erian, for one, says he would sound the alarm if treasury yields dip into negative territory. "If we do I'm going to be really worried because negative yields in the U.S., the world's biggest financial market, will break things," he told Yahoo Finance.

... [and] there are some pretty serious negatives, certainly from the standpoint of uncertainty. A recent note by JPMorgan lays out nine unintended consequences; including lower bank profitability, lower credit creation, paradoxically higher rates in some instances (banks need to make up for lower income), reduced liquidity and functionality of credit markets, increased deficits in pension funds, and even exacerbation of wealth and income inequality.

A negative-yielding mortgage -- sounds kind of nice, until you realize that with such a positive-feedback loop for borrowing to buy property, that will tend to blow insane housing bubbles...

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iehi-feed-64892 Fri, 23 Aug 2019 20:42:23 GMT Why Even Meritocracy Hasn't Saved Us From Our Winner-Take-All Economy http://implode-explode.com/viewnews/2019-08-23_WhyEvenMeritocracyHasntSavedUsFromOurWinnerTakeAllEconomy.html The elite should not--they have no right to--expect sympathy from those who remain excluded from the privileges and benefits of high caste. But ignoring how oppressive meritocracy is for the rich is a mistake. The rich now dominate society not idly but effortfully. The familiar arguments that once defeated aristocratic inequality do not apply to an economic system based on rewarding effort and skill. The relentless work of the hundred-hour-a-week banker inoculates her against charges of unearned advantage. Better, then, to convince the rich that all their work isn't actually paying off.

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Elites naturally resist policies that threaten to undermine their advantages. But it is simply not possible to get rich off your own human capital without exploiting yourself and impoverishing your inner life, and meritocrats who hope to have their cake and eat it too deceive themselves. Building a society in which a good education and good jobs are available to a broader swath of people--so that reaching the very highest rungs of the ladder is simply less important--is the only way to ease the strains that now drive the elite to cling to their status.

How can that be done? For one thing, education--whose benefits are concentrated in the extravagantly trained children of rich parents--must become open and inclusive. Private schools and universities should lose their tax-exempt status unless at least half of their students come from families in the bottom two-thirds of the income distribution. And public subsidies should encourage schools to meet this requirement by expanding enrollment.

A parallel policy agenda must reform work, by favoring goods and services produced by workers who do not have elaborate training or fancy degrees. For example, the health-care system should emphasize public health, preventive care, and other measures that can be overseen primarily by nurse practitioners, rather than high-tech treatments that require specialist doctors. The legal system should deploy "legal technicians"--not all of whom would need to have a J.D.--to manage routine matters, such as real-estate transactions, simple wills, and even uncontested divorces. In finance, regulations that limit exotic financial engineering and favor small local and regional banks can shift jobs to mid-skilled workers. And management should embrace practices that distribute control beyond the C-suite, to empower everyone else in the firm.

... Nevertheless, there are grounds for hope. History does present one clear-cut case of an orderly recovery from concentrated inequality: In the 1920s and '30s, the U.S. answered the Great Depression by adopting the New Deal framework that would eventually build the mid-century middle class. Crucially, government redistribution was not the primary engine of this process. The broadly shared prosperity that this regime established came, mostly, from an economy and a labor market that promoted economic equality over hierarchy--by dramatically expanding access to education, as under the GI Bill, and then placing mid-skilled, middle-class workers at the center of production.

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iehi-feed-64891 Fri, 23 Aug 2019 20:20:41 GMT Donald Trump can't just 'hereby order' whatever he wants http://implode-explode.com/viewnews/2019-08-23_DonaldTrumpcantjustherebyorderwhateverhewants.html Donald Trump can't order American business to do anything. There's a reason the business world is known as the "private sector" -- because it's not owned or controlled by the government (aka the "public sector.") We don't have state-run industry (or media). The President of the United States can't "order" privately held business to do, well, much of anything.

Now, that doesn't mean that Trump can't have any influence. Every CEO will be apprised of Trump's tweets -- if they haven't already been -- and some, in an effort to cozy up to Trump or because they agree with him about the threat posed by China, will look for ways to divest in the country.

But that's very different than companies having to look for alternatives to China because the President said so. They, uh, don't.

It's not immediately clear -- to me at least -- if Trump understands that. Throughout his presidency, he has marveled at the total control that authoritarian rulers -- in places like Russia and China -- exert over their countries and publicly wished he had control like that.

Around here, we long have criticized the lopsided economic relationship with China; but simplistic and hasty responses are not the answer.

Also, we should respond to Donald Trump's presidency by enumerating a non-exhaustive list of automatically impeachable offenses, one of which being attempting to issue orders grossly outside of the president's constitutional power.

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iehi-feed-64889 Fri, 23 Aug 2019 18:28:03 GMT After Trump broke his promise to eliminate the national debt, GOP senators say ‘next term' http://implode-explode.com/viewnews/2019-08-23_AfterTrumpbrokehispromisetoeliminatethenationaldebtGOPsenatorssa.html iehi-feed-64882 Tue, 20 Aug 2019 09:20:39 GMT Climate change could rain on Saudi Aramco's IPO parade http://implode-explode.com/viewnews/2019-08-20_ClimatechangecouldrainonSaudiAramcosIPOparade.html "The longer that (the IPO) gets delayed, the less willing the market will be to price it favorably because gradually investors are going to need to ask questions about how valuable those reserves are in a world that is trying to get down to net zero emissions by 2050."

Reuters reported on Aug. 8 that Prince Mohammed was insisting on a $2 trillion valuation even though some bankers and company insiders say the kingdom should trim its target to around $1.5 trillion.

A valuation gap could hinder any share sale. The IPO was previously slated for 2017 or 2018 and, when that deadline slipped, to 2020-2021.

Aramco told Reuters it was ready for a listing and the timing would be decided by the government.

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iehi-feed-64881 Mon, 19 Aug 2019 09:14:16 GMT Trump goes on attack as economy fears cloud 2020 hopes http://implode-explode.com/viewnews/2019-08-19_Trumpgoesonattackaseconomyfearscloud2020hopes.html ``the President, who dispatched his top economic advisers to Sunday talk shows, is also dishing out a mixture of accurate and misleading commentary and blaming the Federal Reserve and the media in case there is trouble ahead.

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Uncertainty about the economy is fomented partly from conflicting signs. Jobs growth remains strong in the US and consumer spending is robust, according to the latest data.

But the slowest growth in China in three decades, imminent recession fears in big European economies and bearish signals sent last week by the bond markets could be early warning signs of a 2020 economic headache for Trump.

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"We don't know yet, are we headed for a recession? That's not my base case scenario," Minneapolis Federal Reserve President Neel Kashkari told CNN's Brianna Keilar on Friday. "But the risks have increased quite a bit."

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iehi-feed-64874 Thu, 08 Aug 2019 21:42:24 GMT Is Pimco Right That Negative Yields Make Sense? http://implode-explode.com/viewnews/2019-08-08_IsPimcoRightThatNegativeYieldsMakeSense.html ``It's still too soon to say his final conclusion -- that people are "willing to accept a negative interest rate" to transfer purchasing power to the future -- will stand the test of time. It's true that bonds with sub-zero yields have been around for years and that the pile has now grown to a staggering $15 trillion. But as I wrote recently, much of that debt was issued with a positive interest rate, and those buyers have seen sharp price appreciation as a result. The true test is still to come when countries and even companies try to sell securities that pay no interest at a price above face value, guaranteeing a loss if held to maturity.''

This argument is logical in the sense that, with financial economies so unstable, people might actually be able to pay a premium to "transfer purchasing power into the future". After all, that's pretty much the same as paying the carrying costs to hold cash (i.e., a bank account fee on a zero-yield checking account, or vault fees for cash), or storage fees for gold that, on average "goes nowhere". But what about inflation? This all assumes there's no inflation -- but at a minimum, the premium people are willing to pay implicitly must have an inflation rate subtracted from it. So if one is willing to take a 2% negative interest rate, one is likely assuming 0% inflation (or perhaps one would really be willing to pay a 4% negative interest rate, if it were not for 2% assumed inflation). The point being: if inflation really starts heating up in a general sense, these consumer-accepted negative interest rates will disappear real fast.

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iehi-feed-64871 Wed, 07 Aug 2019 00:21:17 GMT Can the Fed Prop Up The "Everything Bubble" Forever? http://implode-explode.com/viewnews/2019-08-06_CantheFedPropUpTheEverythingBubbleForever.html iehi-feed-64868 Tue, 06 Aug 2019 15:18:41 GMT Is a US Recession Coming? Yield Curve Loudest Warning Since 2007 http://implode-explode.com/viewnews/2019-08-06_IsaUSRecessionComingYieldCurveLoudestWarningSince2007.html