06-14-2016, 10:24 PM
*** 15-Jun-16 World View -- German 10 year bund yield goes negative, as deflationary spiral continues
This morning's key headlines from GenerationalDynamics.com
****
**** German 10 year bund yield goes negative, as deflationary spiral continues
****
![[Image: g160614b.jpg]](http://www.GenerationalDynamics.com/ww2010/g160614b.jpg)
The Sun (London) endorsed Brexit option to 'leave the EU', as stocks sold off and German bond yields went negative (ZeroHedge)
The interest rate paid by Germany's Bundesbank (central bank) if you
deposit money with them for ten years has gone negative. That means
that if you deposit money with them, then you'll get less money back,
instead of more money, as would happen in "normal" times.
That's the meaning of the announcement that the yield (interest rate)
on Germany's 10-year bund (bond) fell briefly on Tuesday to -0.033%,
before closing at the end of the day at -0.028%. It also means that
if the Bundesbank lends money to someone, then they'll pay you to take
their money, rather than charge you.
Of course, ordinary citizens can't borrow money from the central bank,
but regional banks can. The Bundesbank wants to encourage regional
banks to borrow money, and then lend that money out to businesses to
stimulate the economy. That's the reasoning behind negative interest
rates.
Germany is just the most recent country whose central bank has adopted
negative interest rates on 10 year bonds. The Bank of Japan (BOJ) and
the Swiss National Bank (SNB) have done the same.
Other countries still have positive interest rates for 10 year bonds,
but have negative interest rates on shorter term bonds. (As a general
rule, a shorter-term loan pays a higher interest rate than a
longer-term loan because a shorter-term loan is considered less
risky.)
Austria, Sweden, Netherlands, France, Denmark and Belgium have
negative interest rates on 4 or 5 year bonds, while Finland has
negative interest rates on 3 year bonds.
The yields on UK gilts (bonds) are still positive, but they fell to
1.18% on 10 year gilts on Tuesday, a record low in more than 3
centuries of trading.
All of these countries' central banks are adopting negative interest
rates in the hope of inflating their currencies and promoting growth.
Instead, growth is flat, and the currencies are increasingly
deflationary.
Generational Dynamics predicted that all of this would happen, as I've
been writing since 2003. Mainstream economists have repeatedly been
wrong about all this, time after time.
In fact, in the early 2000s, when interest rates were decreasing to
around 2%, mainstream economists began predicting inflation or
hyperinflation. They've continued predicting that high inflation
would begin next quarter for quarter after quarter, and they've been
wrong every time. Mainstream economists have consistently been
clueless about what's going on.
The fact is that Keynesian economics is dead wrong because it doesn't
take generational theory into account. Monetarist economics is dead
wrong because it doesn't take generational theory into account.
Austrian school economics is dead wrong because it doesn't take
generational theory into account. None of these branches has
predicted correctly for at least 15 years.
As I've pointed out many, many times, mainstream economists didn't
predict and can't explain the tech bubble of the 1990s, didn't predict
and can't explain the huge credit and real estable bubble of the
mid-2000s decade, and the real estate collapse and credit crisis after
2007. In almost all cases, they didn't even know that there'd been a
real estate bubble until around 2009, two years after it had started
to burst.
As I've been writing since 2003, the global financial system is in a
deflationary spiral. High inflation and superinflation, which many
economists have incorrectly predicted for years, is not going to
happen. Instead, deflation is growing and will continue to grow.
Central bankers are finally beginning to grasp this, which is why
they're adopting negative interest rates as a move of total
desperation to stop the deflationary spiral.
Generational Dynamics predicts that the world financial system is
headed for a global panic and crash, with 100% certainty. Deutsche Welle and CNBC and Bloomberg
****
**** Brexit: The polls versus the bookies
****
There was a global selloff of stocks on Tuesday. This is consistent
with the falling yields (interest rates) on bonds. When people sell
stocks and put the money into bonds, then by the law of supply and
demand, the price of the bonds goes up, which means that the yields go
down.
Since stocks are considered to be more risky than bonds, some analysts
are calling Tuesday's actions a "rush for safety." Investors who fear
that stock prices will fall can sell their stocks and use the money to
purchase bonds, even at negative interest rates, just so their money
will be safe.
Many analysts are blaming this rush to safety on the fact that on June
23, UK citizens will be voting on the "Brexit" referendum, to decide
whether the UK should leave the European Union. What's happened in
the last couple of weeks is that a number of new polls have come out
indicating that more and more Britons are favoring the "leave" option.
A Guardian/ICM poll gave "leave" a 7 point lead on Monday, while a
Times/YouGov poll gave "leave" a 5 point lead. Many investors believe
that a vote to leave the EU will cause financial chaos, at least in
the short run. According to analysts, this is the reason for the
"rush to safety."
However, many people believe that the polls are wrong. Many people
are reluctant to admit to pollsters that they're going to vote for a
"politically incorrect" choice, so they tell pollsters one thing and
then vote the other way in the privacy of the voting booth.
So it's perhaps not surprising the bookies and betting firms are
placing a 60% or better chance that voters will choose the "remain"
option in the Brexit referendum vote.
However, only a month ago, bookies were placing an 80% probability on
"remain." So although the bookies still favor "remain," the
probability has been falling, and may go below 50% by referendum day.
Bloomberg and Reuters and Bloomberg and ZeroHedge
KEYS: Generational Dynamics, Germany, Bundesbank, Bank of Japan,
Bank of England, Brexit
Permanent web link to this article
Receive daily World View columns by e-mail
Contribute to Generational Dynamics via PayPal
John J. Xenakis
100 Memorial Drive Apt 8-13A
Cambridge, MA 02142
Phone: 617-864-0010
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.gdxforum.com/forum
Subscribe to World View: http://generationaldynamics.com/subscribe
This morning's key headlines from GenerationalDynamics.com
- German 10 year bund yield goes negative, as deflationary spiral continues
- Brexit: The polls versus the bookies
****
**** German 10 year bund yield goes negative, as deflationary spiral continues
****
The Sun (London) endorsed Brexit option to 'leave the EU', as stocks sold off and German bond yields went negative (ZeroHedge)
The interest rate paid by Germany's Bundesbank (central bank) if you
deposit money with them for ten years has gone negative. That means
that if you deposit money with them, then you'll get less money back,
instead of more money, as would happen in "normal" times.
That's the meaning of the announcement that the yield (interest rate)
on Germany's 10-year bund (bond) fell briefly on Tuesday to -0.033%,
before closing at the end of the day at -0.028%. It also means that
if the Bundesbank lends money to someone, then they'll pay you to take
their money, rather than charge you.
Of course, ordinary citizens can't borrow money from the central bank,
but regional banks can. The Bundesbank wants to encourage regional
banks to borrow money, and then lend that money out to businesses to
stimulate the economy. That's the reasoning behind negative interest
rates.
Germany is just the most recent country whose central bank has adopted
negative interest rates on 10 year bonds. The Bank of Japan (BOJ) and
the Swiss National Bank (SNB) have done the same.
Other countries still have positive interest rates for 10 year bonds,
but have negative interest rates on shorter term bonds. (As a general
rule, a shorter-term loan pays a higher interest rate than a
longer-term loan because a shorter-term loan is considered less
risky.)
Austria, Sweden, Netherlands, France, Denmark and Belgium have
negative interest rates on 4 or 5 year bonds, while Finland has
negative interest rates on 3 year bonds.
The yields on UK gilts (bonds) are still positive, but they fell to
1.18% on 10 year gilts on Tuesday, a record low in more than 3
centuries of trading.
All of these countries' central banks are adopting negative interest
rates in the hope of inflating their currencies and promoting growth.
Instead, growth is flat, and the currencies are increasingly
deflationary.
Generational Dynamics predicted that all of this would happen, as I've
been writing since 2003. Mainstream economists have repeatedly been
wrong about all this, time after time.
In fact, in the early 2000s, when interest rates were decreasing to
around 2%, mainstream economists began predicting inflation or
hyperinflation. They've continued predicting that high inflation
would begin next quarter for quarter after quarter, and they've been
wrong every time. Mainstream economists have consistently been
clueless about what's going on.
The fact is that Keynesian economics is dead wrong because it doesn't
take generational theory into account. Monetarist economics is dead
wrong because it doesn't take generational theory into account.
Austrian school economics is dead wrong because it doesn't take
generational theory into account. None of these branches has
predicted correctly for at least 15 years.
As I've pointed out many, many times, mainstream economists didn't
predict and can't explain the tech bubble of the 1990s, didn't predict
and can't explain the huge credit and real estable bubble of the
mid-2000s decade, and the real estate collapse and credit crisis after
2007. In almost all cases, they didn't even know that there'd been a
real estate bubble until around 2009, two years after it had started
to burst.
As I've been writing since 2003, the global financial system is in a
deflationary spiral. High inflation and superinflation, which many
economists have incorrectly predicted for years, is not going to
happen. Instead, deflation is growing and will continue to grow.
Central bankers are finally beginning to grasp this, which is why
they're adopting negative interest rates as a move of total
desperation to stop the deflationary spiral.
Generational Dynamics predicts that the world financial system is
headed for a global panic and crash, with 100% certainty. Deutsche Welle and CNBC and Bloomberg
****
**** Brexit: The polls versus the bookies
****
There was a global selloff of stocks on Tuesday. This is consistent
with the falling yields (interest rates) on bonds. When people sell
stocks and put the money into bonds, then by the law of supply and
demand, the price of the bonds goes up, which means that the yields go
down.
Since stocks are considered to be more risky than bonds, some analysts
are calling Tuesday's actions a "rush for safety." Investors who fear
that stock prices will fall can sell their stocks and use the money to
purchase bonds, even at negative interest rates, just so their money
will be safe.
Many analysts are blaming this rush to safety on the fact that on June
23, UK citizens will be voting on the "Brexit" referendum, to decide
whether the UK should leave the European Union. What's happened in
the last couple of weeks is that a number of new polls have come out
indicating that more and more Britons are favoring the "leave" option.
A Guardian/ICM poll gave "leave" a 7 point lead on Monday, while a
Times/YouGov poll gave "leave" a 5 point lead. Many investors believe
that a vote to leave the EU will cause financial chaos, at least in
the short run. According to analysts, this is the reason for the
"rush to safety."
However, many people believe that the polls are wrong. Many people
are reluctant to admit to pollsters that they're going to vote for a
"politically incorrect" choice, so they tell pollsters one thing and
then vote the other way in the privacy of the voting booth.
So it's perhaps not surprising the bookies and betting firms are
placing a 60% or better chance that voters will choose the "remain"
option in the Brexit referendum vote.
However, only a month ago, bookies were placing an 80% probability on
"remain." So although the bookies still favor "remain," the
probability has been falling, and may go below 50% by referendum day.
Bloomberg and Reuters and Bloomberg and ZeroHedge
KEYS: Generational Dynamics, Germany, Bundesbank, Bank of Japan,
Bank of England, Brexit
Permanent web link to this article
Receive daily World View columns by e-mail
Contribute to Generational Dynamics via PayPal
John J. Xenakis
100 Memorial Drive Apt 8-13A
Cambridge, MA 02142
Phone: 617-864-0010
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.gdxforum.com/forum
Subscribe to World View: http://generationaldynamics.com/subscribe
