Mish too caught the Buiter post and he was not as nice as I was...
I ask
It is like this: when you know your 30% funded pension is invested in a stock market that is going down 50%, you don't end up with 60% funding of the pension. What you end up with is $300 million of a billion pension funding becomes $150 million of a billion dollar pension obligation. Better to take a sure 4% loss in ten years rather than that 50% near-sure loss.
One way of another, your pension cannot be funded fully, except government pensions. And those will be easiest to share with the people who are without.
Feel free to forward this by email to three of your friends.
Negative Interest Rates
I have discussed the stupidity of negative interest rates several times recently. The natural rate of interest can never be negative.
For discussion, please see Stupidity of Negative Interest Rates Expands to Spain; Deflation Shock Thesis.
Also see Thrown Under the Bus: Another Look at the Self-Serving Launch of Ben Bernanke's Blog and the Brookings Institute's Pandering Role.
Pater Tenebrarum's article Ben Bernanke’s Apologia for the Fed is a third discussion on the absurdity of negative rates.
I ask
Mish,No answer. But negative interest rates may by tactical:
You write clearly, but here I have been befuddled for the last few posts regarding negative interest rates, with concomitant credit deflation. Yes, they are not natural, but they do occur. Credit inflation occurs, although it is not natural. Both are stupid policies. But it seems you are saying negative interest rates cannot happen, when in fact they are there, now, in place, on offer, being taken. Can you clarify your point in this instance? Thanks
In other words, some investors are quite pessimistic about the overall economic outlook for the continent and the future of the Eurozone. They are so desperate in their search for safe havens that they pay for the privilege of lending money. Similarly, the recent unconventional central banks' actions show that they are really desperate. It signals that not only did all the previous monetary stimuli failed to fuel the economy, but also that the global slowdown is coming. Look at the producers' price indices. The central bankers, as insiders, know that deflation in commodity and industrial prices indicates the crack-up phase of the business cycle.The article explains how possibly the Norther Euro banks are offering negative interest rates to get Southern Euro banks not to invest in gold and silver or other safe solid investments. Interesting if true.
It is like this: when you know your 30% funded pension is invested in a stock market that is going down 50%, you don't end up with 60% funding of the pension. What you end up with is $300 million of a billion pension funding becomes $150 million of a billion dollar pension obligation. Better to take a sure 4% loss in ten years rather than that 50% near-sure loss.
One way of another, your pension cannot be funded fully, except government pensions. And those will be easiest to share with the people who are without.
Feel free to forward this by email to three of your friends.
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