E Central Bank Victory And Negative Bond Rates

Before discussing negative bond rates, and Martin Armstrong's article, it is becoming clear that the central banks in Europe, the USA and Japan are victorious in their plan to stabilize the world financial system.

All I hear about is people saying the Fed is a failure and the Fed has no control of things and collapse is imminent. They are usually talking about collapse of the bond market. I don't see it. That doesn't mean the central banks have not hurt people in order to prevail. Saving the economy was not the mandate of the central banks. If you want the economy first, you probably would have to ban or take over central banks. And even then you may not get what you want.

I don't see negative bonds being the endgame of the financial system as Addison Quale says.  I don't see negative bond yields as being the precursor of financial collapse. In fact, as long as demand is high for negative yielding bonds, the central bank leaders look like geniuses.

That does not mean that their genius helps out the real economy that much. It does help, some, by providing stability, but robust growth is no longer important to the central banks. Growth must remain slow, as you can't disrupt the bonds, the value of bonds in the world. Those values will continue to increase and yields will continue to diminish. I suppose if this slow growth plan ends up killing the real economy, then it could turn into chaos.

But the central banks have engineered just enough growth to stabilize the banks and keep the economy growing a bit. This infuriates market monetarists, and people who feel disenfranchised and seniors who cannot get a return on their investments. It is a new world now, and those people who desire real robust growth don't matter so much. The Fed and central banks have lost one power, the ability to raise interest rates in the face of so much bond collateral in the derivatives markets.

This new system hurts a lot of people. Genius can be unfair, and it has proven to be very hurtful to many on mainstreet.  But, the economies seem to be muddling through.

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Disclosure: I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice.

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Norman Mogil 3 years ago Contributor's comment

I agree with the premise of this argument.

The negative yields are no passing fad. It is hitting the shores of North America. Yesterday, the Canadian bank, CIBC, issued over $1.25 billion in covered bonds ( collateral Canadian mortgages) which immediately traded a negative rate, demand was overwhelming.

Gary Anderson 3 years ago Author's comment

Thank you for that information about the Canadian version of MBSs.