There is a mountain of overvalued debt in the world, and
folks are beginning to wonder how long it can exist before it washes out
to sea. About $8 trillion in debt around the world is currently trading
at a negative interest rate, implying that the holders of this debt
expect deflation for the foreseeable future. Smart, rational investors
around the world are bemoaning the stupidity of this situation in
increasing numbers, but central bankers push onward with their quest to
drive rates even lower, in the hope (wrongly) that lower rates will spur
lending by banks and investing by companies. Yes, you read that right –
the geniuses in Brussels think that lower rates will make banks want to
lend more. Why? Because that’s what their broken models tell them.
Don’t believe me? Watch this video
on the inner workings of the ECB’s bond buying operations. Skip ahead
to the 2:30 mark for the explanation of why they are doing it, but be
sure you’re alone, because if you actually have a brain and think about
what he says, you’re going to want to scream. If you want to understand
the crazy distortions in bond markets today, take 3 ½ minutes to check
it out.
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