Friday, August 24, 2012

NIRP: The Financial System’s Death Knell? by Eric Sprott

Be sure to read this article. The implications of NIRP for the financial system are profound.

Just think of the methods now employed by our 'lucky' banks here in New Zealand as they push low interest rate loans onto unwary 'Mums and Dads' to lure them into the investment housing market. More of these tricks will be played as Banks get desperate to create a return on investment.

From Eric Sprott and David Baker:

"On July 18th, 2012, the German government sold US$5.13 billion worth of 2-year bonds at an average yield of -0.06%. Please note the negative symbol in front of that yield number. What this means is that the German government was able to borrow money for less than nothing. When those specific bonds expire in two years’ time, the German government will pay back the original $5.13 billion minus 0.06%. Expressed another way, investors knowingly and willingly bid the German government $5.13 billion in exchange for bonds that will pay no interest and are guaranteed to lose them money on expiration. Welcome to the new status quo.

Germany is not alone. Over the past six months, the countries of Netherlands, Switzerland and France have also issued short-term government debt at negative yields. Like Germany, they’ve been able to do this because European bond investors are so shell shocked that they’d rather park money in a bond that’s guaranteed to only lose a miniscule amount rather than risk losing more in a PIIGS bond that actually pays some interest. In addition, many investors view German, French and Dutch bonds to be cheap options on the break-up of the Eurozone. If the EU currency union collapses, euro-denominated bonds issued by those specific countries may be paid back in re-issued deutschmarks, francs or guilders, which will be far more valuable than the euros that were spent to buy the bonds in the first place… or at least that’s the idea. As a result of this thinking, the bond market auctions for these select countries have seen overwhelming demand, making NIRP (Negative Interest Rate Policy) the new ZIRP (Zero Interest Rate Policy)"...more here


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Previous all-time high: $2311.02 per oz (15 Nov, 2011)

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Previous all-time high: $59.19 per oz (30 Apr, 2011)
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