Today is a Historical Day – First Offical Negative Interest Rate by a Central Bank
QUESTION: Mr. Armstrong -
Is today (June 5th 2014) the first time in history that negative interest rates have been imposed by a central bank (or similar authority)?
I don’t recall from your writings. I know that you’ve written that the current student debt situation has never been encountered before.
I have a feeling that today is a very significant milestone.
Regards,
ADN
ANSWER: Yes. Rates have dipped negative on a bid during a crisis in the open market. But this is the first “official” negative rate by a central bank.
The $19 Trillion in Retirement Accounts
QUESTION: Thank you for your blog. You put a lot of work and knowledge into it. Again, thanks.
When you talk about $19 Trillion in pensions in the USA I take that to mean “pensions.” But then you said “retirement accounts” or retirement savings”, which may include IRAs.
Do you foresee all forms of tax-advantaged savings being “raided” to fund the government or just government pensions or all pensions? (I’m stressing “pension” vs “retirement savings”)
Thank you.
ES
ANSWER: Unfortunately, this includes retirement savings and private pensions. This does not include fictitious funded states or the Fed;s SS. I do not BELIEVE that they will seize any accounts in the USA before 2016. When the economy turns down, to hold on to power, they will then look to seize retirement funds when they cannot sell their bonds. It will be a forced investment. In the case of Greece, there the pensions are pretending to invest in buying government buildings?
We have to possible solutions. But they will not take that up until there is no other choice. They are hunting money everywhere. They have their eye on 401Ks. What they will do just yet is not formulated. I do speak to people on Capitol Hill trying to get a sense of which way the wind is blowing. We need to stop the debt cycle. That does not seem plausible just yet under this administration.
Then they will impose the Cadillac Tax on all benefits to jack up our taxes sharply. Even at current rates, my own healthcare jumped to almost $15,000 annually and that will then be taxed $6,000 under the Cadillac Tax. Effectively, my personal healthcare will have gone up $6,000 to about $21,000 and the tax will be equal to what I was paying. I cannot see how these morons think this will not seriously impact the economy from 2016.
We are in a tremendous bull market in taxes I have NEVER see anything like this in history. True, the rates were higher but so were the deductibles. This is raw tax and the deductibles are vanishing making the effective tax rates rising faster than at any time in history.
Left unchecked, these people will absolutely destroy civilization convinced they need just a little more time. They have no vision. All it is about now is surviving one day at a time. So yea – they will raid everything they can get away with.
Observation From China
A reader in China has contributed this observation:
COMMENT:
Hi Martin,
Just a personal observation for you. Turns out governments think the same.
Prices in real estate has been dropping here in Hangzhou city, Zhejiang, China. A combination of factors have caused a lower confidence in the real estate market in the city. Developers have also been cutting prices to encourage sales so as to get their money back for cashflow, further contributing to the lower of confidence and setting the expectation that prices will drop.
However, when prices drop to a certain level, for example 8000 – 12000 RMB / sqm in some districts here in the city, or around 5000 RMB / sqm in nearby areas, the first time home buyers do swoop in and purchase the units.
The government, though, fearing a “collapse” in prices, hurting their sole revenue stream by selling land use rights (with the estimated revenue from land rights sales contributing 95% of this year’s operating budget), have imposed “price decline limit” policies discouraging dropping of prices by developers.
This in effect is cutting out the “shorters/buyers” who provide a base support at the market’s bottom, further endangers smaller developers who can’t sell units at lower cost to replenish cash flow, which leads to these developers running out of town and leaving unfinished units to the banks becoming bad debts, and further cutting capital available for the economy, which will cycle back to have even less appetites for units with prices at an artificially supported level. All these while available monies and credits are sitting on the sidelines in the accounts of those who are looking to buy their first homes at an affordable price.
Obamacare is Victory for Insurance Companies
My personal healthcare at NJ Blue Cross has gone from $511 per month to about $1200 and I now have full maternity coverage – something I really needed.. It was up there with the Terrorist Insurance the City of Philadelphia wanted no doubt because somebody’s brother-in-law or crime had their hand in it. I can’t wait for the Cadillac Tax. The Democrats are a bunch of liars. This is not a success – it is a real disaster. This is personal experience. It would have been cheaper to give free healthcare to the 8 million than double everybody else and then apply the Cadillac Tax on that in 2016.
DAX Passes 10,000
QUESTION: Marty; I attended the Berlin Conference where the …. central bank attended. You said that a closing above 8100 in the DAX would result in the index breaking the 10,000 level in 2014 and perhaps reach 11,400-12,000 by 2015. Well, congratulations. You got another one right. Are we headed into that high now for next year?
ANSWER: So far, it appears to be on track. The skepticism in the US about the US share market is still very high. This warns we are nowhere near the final highs yet. The DAX, though, will have a 13 year high from the lowest annual closing in 2002 and 12 years up from the 2003 low. The middle ground resistance was 9700. If that now provides support, then we can run up to test the next area in the 11400 area. The key support lies now at the 9000 level and holding that on a monthly closing basis will keep the DAX firm. There can be a scare come September. That is where we have to target support carefully.
The vast majority of analysts have been wrong because they are focused on the traditional fundamentals that do not apply in a Sovereign Debt Crisis. People are scared of what is coming where a fool and his money will be easily parted. First we have to identify the trend, then correlate the investments carefully. If the DAX were to exceed 12,000, then we are in a real Phase Transition to the upside and you better pay VERY CLOSE attention to what our computer forecasts next.
ECB Goes to Negative Interest Rates
Mario Draghi, President of ECB, has taken the European Central Bank deposit rate to negative territory. He cut the deposit rate for banks from zero to -0.1%, to encourage banks to lend to businesses rather than hold on to money. This has been in the works ever since Larry Summers floated the idea before. In this case, Draghi is trying to encourage the banks to lend, but what he fails to grasp is someone has to want to borrow and see an opportunity to borrow to make a profit. It is not merely the implicit empirical rate of interest that matters.
The ECB also cut its benchmark interest rate to 0.15% from 0.25%. The ECB is the first major central bank to introduce negative interest rates. We should expect more of this even in the USA after 2015.75. The euro has been falling because this has been widely expected. The mere fact that the ECB has gone negative demonstrates what I have been warning about – the steep economic decline in Europe is pervasive. This confirms that reality.