In Soviet Europe, You Pay Banks To Hold Your Money
Germans manage to do strange things with money during times of crisis — during the Weimar-era of the 1920s, hyperinflation led to the Bauhaus-designed million mark note, seen above. (And ultimately far, far worse things over the next 20 years.) Today’s Germany, a safe haven in the otherwise seemingly imploding EU, is floating the negative interest note. In other words, it’s “Zero Hour: Panicked European Investors Pay Germany to Take Their Money,” Joel B. Pollak writes at Breitbart.com:
As investors panic over the debt crisis in Greece, Italy, and Spain, Germany has emerged as a safe haven for investors–so much so that the interest rate on ten-year German government bonds dropped below zero on Friday. That means investors are so desperate for security that they are willing to accept less money at the end of ten years than they invest today; they will pay the German government to take their money.
Bloomberg News reported on June 1:
Germany’s 10-year bunds, Europe’s benchmark government debt securities, headed for a seventh weekly advance, driving yields to an all-time low. Austrian, Dutch and French yields also fell to records as a report confirmed euro-region manufacturing contracted in May…
The German two-year yield slid to as low as minus 0.002 percent, the first time the rate on the securities has been negative, according to data compiled by Bloomberg, and was at 0.005 percent as of 9:03 a.m. London time. The price of the zero percent note due in June 2014 was at 99.99.
Investors are betting that less money in a decade is infinitely better than no money even sooner. Presumably, these bonds won’t be held until maturity, merely until the EU’s crisis is over. (Which may or may not happen in less time.)
Not much different here where scads of people are pulling their 401k money from stocks and sticking it in money market funds bearing interest below the real rate of inflation.
True, that is the same end result. But I don’t recall ever seeing a financial instrument with a negative interest rate in the US before.
Not in the US that I’m aware of. Those German bonds will appreciate rapidly if the euro collapses and they are denominated in DM’s. The same will be true of the Swiss bonds if the Swiss finally give up and decouple the franc from the euro-peg. Everyone’s hedging in their own way.
I think I have noticed a never before seen phenomenon. The baby boomers have a huge amount saved. They all need a return on their savings, for their retirement. When there are so many needing a return, it is impossible to get.. There is more demand for a return on investment, than there is demand for borrowing money. If you are a businessman, with a profitable company, money is cheap, and easy to get.
This leads me to two conclusions. Interest rates will not climb, for years. If interest rates were to go up, it will crash the system. People with money, would lose more than those borrowing it.
Maybe the new housing market will come back sooner than expected. People with a good income, will be able to get long term money for homes cheap.
The reason there are Wall Street problems, is because the money people ,are having such a hard time ,getting this vast amount of available money, a return.