Wednesday, January 25, 2012

Negative Interest Rates Are Destroying the Economy

Low interest rates have skewed investment sentiments from Hellenic and Roman times until a couple of hours ago. With -0- rate of return in any sort of bond; the Fed (with a BBB- real world rating), States (47 states are technically bankrupt) junk bonds or even decent corporates, you are behind the ever increasing inflation rate now along the lines of 9-10%.

This forces the average person as well as institutional investors to seek returns that actually show on the plus side of the income statement. PSI's require AAA ratings, available in only 4 Euro states and -0- US states. UST's are AA plus according to the rating sock puppet S&P
Where does one go to find some decent returns?
The DOW--yielding -0- for the last decade? NASDAQ--down 50% since the peak of the tech bubble? S&P? I don't think so
Gold and silver have returned 10% annually this last decade, keeping pace with or exceeding inflation rates.
I'm no different that anyone else. I'd like to stay ahead of the return vs inflation game. Seems like gold and silver are a good choice.
And I can spend it if I want to.

Stagflation is what we have now, just like the 1970-80 time period. 10% inflation, 10% unemployment and a rapidly increasing national debt.
The solution then was severe. 15% rate on T bonds vs today's 3%. Prime rate 19%. Silver and gold went up between 1000% and 2000%.

When the UST is forced to increase rates to 6-8% as a minimum to sell its junk bonds to an increasingly skeptical buying public, the value of these bonds will drop by 50-75%, crushing the portfolios of those foolish enough to invest in this form of paper.
Every time the government debases its currency and is forced to increase rates of return to draw more foolish money into the sovereign coffers, the citizens wealth and enterprises are absolutely destroyed, along withe country. Ever time.
But this time it's different, it's it?

Yes, it is different this time.

This time the whole world financial system will be destroyed.