tv Keiser Report RT August 24, 2019 10:30am-11:01am EDT
we would greatly and quickly enhance good for everyone this brings to mind to ship wrecks one the poseidon adventure and the other the titanic on the poseidon adventure they had to realize that the ship it flipped over and it was upside down before they could escape you know and then with the titanic you have these negative interest rates and the economy is sinking but if you remember the titanic film or you know based on the titanic sinking. the front of the boat the balance started to head down into the ocean the tell the aft the not the bad but the tail. it flips up so those are those are the people who buy these negative rate bonds they have the sense that their value of their act of their equity of their bhaumik what is going up as the titanic that is the u.s.
economy heads points down to the bottom of the ocean and when it perpendicular on on the horizon there then the entire thing sinks so trump is we are about 5 to 6 degrees away from perpendicular perpendicular and trump is calling for more of a faster sinking he wants to he wants the u.s. economy to sink faster and you know so and i thought when he came into office he had some brains. but it turns out he is completely out of his mind so this is the end game of any system i think this is the 1st time we've had a global fia system all fiasco prior to 971 as we've pointed out many times we had the gold standard and against gold you could devalue your own currency what we saw
in the 1st great depression the global great depression was a beggar thy neighbor sort of policy so everybody you know reduce their own currency against gold faster and faster to try to beggar thy neighbor we're seeing the same thing of course with the us dollar i think part of the problem is we can't really go negative we'll see you know. alan greenspan this past week said the u.s. dollar can go negative our treasury bonds can go negative however will that destroy the u.s. dollar as a global reserve currency so europe going negative has kind of beggared by neighbor what trump is responding to i think when he sees them being able to cut rates to negative and in terms of that you know titanic people at the top of the you know the part that's not underwater yet they think everything looks fine and it's hunky dory and they're dry right right so something like 94 percent of all the bonds sovereign bonds that are yielding positive rates of return have
a positive yield are the u.s. treasury and u.s. corporate debt even corporate debt in europe is negative 94 percent of bonds that have a positive yield are u.s. bonds so that would be just a few degrees from perpendicular so i think i think the u.s. will go to negative interest rates and i think that will be when the entire global economy still zips right down to the bottom of the ocean and you know gold and of course because when will skyrocket i mentioned alan greenspan he's the former head of the federal reserve in america before he became the federal reserve chairman he of course was a big gold bug and wrote some by. gold and then he started to speak in fed speak he invented fed speak but i think that was really his own way of like you know cognitive dissonance he knew that it was all fake but he had to pretend that he was you know he was speaking truth and his length his mind but nobody could interpret
it and they only read what they thought they heard only famously said it's rubbish than what i'm saying you didn't hear me well that's a good way to put it because he says greenspan says there is no barrier to negative yields in the united states but the other point i want to point out that he said because this is mirrors what we've said here in kaiser report he said why people continue to buy long term treasuries at such low yields maybe also due to forces haven't altered people's time preferences but there are hundreds of years of history showing the long term stability in time preference so these changes won't be forever so he's saying yeah rates could go negative but obviously this is because something has changed humans time preferences investors time preferences. being off since 1981 but he's saying that the long term stability people will come to their senses one day and this whole thing will crash you know it's really
strange is that in these bond markets the liquidity to sell doesn't really exist for you know the fed and other central banks of trying to sell their bonds on their balance sheets they couldn't find any buyers so they stopped they stopped quantitative tightening and they now they're back to easing in the go back to quantitative easing q e 4 in america so without any market to sell their bonds the path of least resistance is to keep buying bonds a particularly since they're being given essentially free money if you can borrow for nothing and interest rate is 0 or less than 0 you know it's not a market where you have to buy from a seller you're just printing you're just printing. gains out of thin air actively so this market is so strange because there's no there's no there's no market for a sale there's only markets for vertical ascent and hence the prices are going negative the yields are going negative right so this is the poseidon adventure mixed with the titanic in one colossal sinking of the global
economy right now we've got donald trump starring with the ghost of paul newman on the bridge of the titanic watching as they engineer a colossal failure of the global economy and without it without the benefit of owning any gold less than one percent of investable assets around the world there's $100.00 trillion own gold. there is a lot of gold at the bottom of the sea thanks to many ships that you sent to carry the gold across. and point out where you find the gold best for our answers when. we figured it out also you mention the strangeness of what's going on in even alan greenspan in his fed speak his elliptical way of speaking is saying things are strange because time preference seems to have changed radically people no longer value time well the bond black hole is getting larger and scarier with a 3rd of the global market now negative the quantum of negative yield debt
doubled to 14 trillion in the 1st half of 2019 its growth now appears to be hitting more speed because it is melting up in terms of the quantity of these negative yielding debts it was at 17 trillion i don't know by the time we speak it could be 800 trillion by the time as air is it could be i have spoken so by the time i spoke it could be a fucking try to remember the game back the titanic they hit the iceberg and you know wasn't i see there's a brilliant video on this on line as all 2 hours and 40 minutes of the iceberg and that sinking of the titanic re redone in real time it's beautiful face this is the how you can understand the economy so they hit the iceberg and they're taking our water for 2 hours you know to what took 2 hours before the actual sinking began in earnest and you know this is where we are the sort of negative interest rate as in 2008 the global economy hit the iceberg we had a credit freeze the global economy it's been
a disk stinking epstein like corpse since 2008 and the central banks keep pumping in the cash but the market takes that free cash and they buy bonds to the point where they yields are negative so that's the capsizing of the boat and they're almost vertical and we're almost right it right down the bottom of the ocean where all the gold is again to mix all our metaphors we have passed the event. arisan and apparently according to physicists once you pass a event horizon there's no going back you're going to be turned into spaghetti and thrown through that black hole what lies on the other side i don't know perhaps it's all that gold at the bottom of the ocean and that will rescue us but of course germany denmark netherlands and finland are all now negative all the way out to the end of their bond horizon and whether or not the us will go there alan greenspan says it might be possible but i want to turn to a quote here from hong kong based mcquarrie strategist victor shrek's because it's
because he says this. the destruction of time value is again like physics you know that's not supposed to be something that happened alan if albert einstein were alive today and he looked at what's happening in the bond markets i think he would be you know sounding the alarm and telling everybody that we've hit an iceberg and move on so he says that we've destroyed the time value of money as this is the core of finance theory so the fact that we've destroyed the core finance theory we've had this meltdown he says this has serious consequences the destruction of the cost of money not only interferes with credit cycles but also keeps zombies alive it encourages speculation and discourages productive investment and spurs a race to the bottom with beggar thy neighbor strategies as nations compete to maximize returns from an ever declining utility of debt right
g.d.p. adjusted for actual inflation including stuff that people actually are exposed to like health care education and food is negative has been for a few years ago the economy in the us is shrinking right now used to take $1.00 of debt you get $1.00 g.d.p. . $1.00 g.d.p. then it now it's. $5.00 a day to get $1.00 g.d.p. that's obviously doesn't work and the thing about some statement is that it mean it can prove he's he's lost his mind in one in one very simple equation if the economy is growing you raise rates that's the economic orthodoxy if the economy is shrinking you lower rates jump a saying the economy's growing but we need to lower rates that's an oxymoron that's refutes all economic orthodoxy and makes absolute it's only an insane person would
make that state well because he sees the propaganda free numbers they do massages the numbers and i think where if you're closer to the treasury and get to see the real details you know that it's taking ever more debt to stand in one place i think that's interesting that it's just math it's the math as i would say in england and it's interesting that. is about believing in math we have andrew yang sent to us and he's all about math and he even has the hat now that he you know sells on his site it's all about the math so i think people are starting to recognize the physics of the situation of passing the event horizon i don't know if it's too late but dang is in the house for sure and they're putting forward mathematical solutions to a mathematical conundrum how do you put 20 pounds of garbage into a 5 pound bag that's the attempt by the american economy is physically impossible
yang is saying you need a 20 pound garbage bag to fit 20 pounds of garbage and that's what gold is always bennett's mathematical number you know it's number on the chemical 79 on the periodic element table mounts are making a comeback it's all coming back mathematically i can guarantee you will be back after this short break don't go away. give me too much. is enough. but i'm also the most companies he knows.
back to the kaiser report i'm max keyser time out of turn to wolf rector of a wolf street dot com all flocking back thanks for having me back max compass demanding the fed cut interest rates by 100 basis points and restart quantitative easing your thoughts wolf rector and that's interesting because also trump is saying that this is the best economy ever so why cut interest rates by a 100 basis points on the already low when this economy is red hot and. you know we're sort of tony between the 2 and the economy is probably in the middle yes not the best economy ever but it's pretty good shape except for manufacturing is not good shape that services. you know consumer spending it's growing retailers doing ok you know in this sense economy is doing in the middle of the range of the last many years and and so there's really no no reason to cut interest
rates from the already low levels and of course to market has already. had those yields down away by about a large amount and so the stimulus in terms of lower rates it's already arrived in the markets i mean barring mortgage rates have come down a lot our corporate borrowing costs have come down so that's already happened without really the fed cutting much of anything that cut $25.00 basis points and the market rate started coming down 8 months ago so those financial easing has taken place and the market with without the fed doing really any cutting and. if i don't think it's necessary to cut i think. the market is overreacting to this and and you know i would like to see the short term rates it or there were about 2 and a half percent and i think just about the rate of inflation i think that will be about right rate of inflation as measured. by by c.p.r. as we usually do you know not some other rate of translation that we might
personally experience which could be a lot higher but this whole idea that the market they commies doing great let's raise rates goes against orthodoxy in terms of if the economy's going great as great as tom says it's going to raise rates that that's what you do if the economy is doing poorly lower rates so he's being duplicitous air or uninformed you know just a few years ago he was saying the opposite that the fed by cutting rates is undermining the economy and isn't just become an expedient for ham to mouth the corporate line and defend the banks outsized profit margins or is he become a less informed sense he's become president wolf and i don't think that drove an informed i think he plays a political game and he has his own objectives and sometimes you know he needs to make people happy over here and sometimes you need 3 needs to make people happy
over there and so he says these conflicting things and and you know it's driven by a political objective not really by by the essence that we're facing and so he won't go change his mind i mean during the campaign he said like you mentioned you know interest rates artificially low that stock market is fake and you know that's a political objective behind everything he says and i think that's how we have to look at it oh ok so the time trying to arrange one syndrome that was popularized by some corners of the political spectrum in fact could apply to comp i'm self when it comes to interest rates an economy now a strategist out of hong kong recently noted that negative rates suggest quote an ever declining utility of debt ok it's interesting phrase that nations is now engaged in beggar thy not neighbor strategy 1st is trump right to respond. entity attempts by europe south to expand i think just like the conversation to global
sense what you know what trump is seeing is that rates are going down in europe and that the us to remain competitive is supposed to be lowering rates but the larger question here would be an ever declining utility of debt it's a phrase you go into in your recent podcast in great detail can you expand on this clearly if you have 2 major economies such as. your p. in the euro zone and japan cutting rates below 0 that has an impact on on you know the economy such as the united states' economy and and it changes you know exchange rates and so forth that could be some disadvantage but there's some real problems and treading rates to 0 and we've seen those and in japan and in europe japan is and you know 0 or a 0 percent rates and negative rates for 2 decades and you know the banking stocks
are down 92 percent i just looked at this the other day when it in my podcast 92 percent from the bubble high in 1989 so that's 3 decades ago and bank stocks if bonds by 92 percent sense and have not recovered their european bank stocks are down where they were in the 1990 s. . banks need to be healthy for them to supply the kind of infrastructure that an economy a modern economy needs and if you don't have healthy banks you know you can't really run a healthy economy and yellowing very low interest rates or negative interest rates make it very difficult for banks in the core business to make money and so they venture into very risky activities. just to make a little bit of money and these risky activities make these banks much more fragile much more. risky. as a core element of. the financial infrastructure and so they you know they don't do with the supposed to do and they just chase yield and they're they're paying
they're taking on extensive research is in collateralized loan obligations which are not really hot at banks and and you have a situation or bank stocks bank investors feel like the banks are way too risky you have an economy that's becoming unhealthy because. the standard. thinking that the standard decision making in an economy is is pricing of risk and that's expressed in a cost of capital so something gets to be riskier investors demand a high yield and that helps corporations identify how much risk they can take and so forth and when you take rates to 0 a below 0 that whole capitalization goes out the window now you have malinvestment as a consequence you have all kinds of wasted resources you have companies taking way too much debt is doesn't cost anything in the not using it for anything productive
so there is a bite back on shares now it's kinds of things and so you have an economy that really doesn't perform well and he see that in japan and you see that in europe in the united states they've had rate hikes in 20182017 our economy has outperformed that of europe and japan so you know i think negative interest rates negative yields are are they destructive think they're maybe ok very short term to deal with an emergency but now that's been going on for years and there is no emergency and we're all touring the way an economy functions we're taking away a decision making model that we have relied on forever which is to the pricing of risk and we're replacing it with some kind of wishy washy concept that nobody really understands and knows how that's going to turn out so i think. it would behoove to be in a leadership role and say no this is gone too far these negative interest rates are
. we need to let the world know that we're not going to do this never again the past i've said this pretty much i've said interest rates are not on the table and and. you know it would be helpful if it provided some leadership in this before we get some really. messy reset it's important you know that's what we get with get a reset and. you know that's going to be very messy when that happens banks loses with low rates and they lose more with negative rates and banks are a fundamental part of the economy and so the question is why is this allowed to continue be like forcing a car company a car manufacturing company to say you can only make cars out of cardboard and that's it you can have to make a business out of selling cardboard cars right to your saying you hate banks you're going to have to make a profit you get to make a viable business with low to negative rates and of course that's in
impossibilities and they're all collapsing bank indexes are collapsing and the reason why is because the banks as of 2008 are insolvent so these are low and negative rates are because they're too big to fail according to the central banks and they need to be kept alive no matter how predatory they become no matter how many good companies and good banks they push out of existence there that this is on both occasions of the global economy is metastasizing and snuffing out any possibility of growth and therefore the debt can never ever be paid because you'll never ever have genuine growth above the rate of the growth in debt so. let me continue on here. so we have also established that big trump by job bombing the fed to lower rates by a 100 basis points and a gauge of quantitative easing for q e. for he is patently and obviously buying votes which again is not only used to be illegal but so much of what used to be
illegal in america nobody pays any attention to anymore all right let's move on so what do you think about rates in the us can they go negative in the us and if so can a still retain reserve currency status that being the us dollar or and will that we see a breaking of the buck remember in the 2008 crisis the money market fund is going to break the buck and alarm bells went off and they had to write a check for $17.00 trillion dollars to bail it too big to fail banks oh here we are once again breaking the buck but the question is will negative rates come to america we've got about 30 seconds and will hold you over but go ahead take a shot at it we've got about 30 seconds well so far i don't think that's wanting to go that way i think they're sticking to your own lower bound and that's why that's what they've been saying i think i may restart years some point when does a big problem but i think negative interest rates from that it's going to be are
not a party that sounds like it's going to be a function also of market action if bonds get bid up in these a story ron you're going to start to see negative yielding debt happen on the treasury market anyway due to the irregularities and the market confusion out there but let's have you on for the segment but i will say goodbye for this segment well thanks for being on the kaiser report thank you max that's going to do it for this edition of the kaiser report with me max kaiser stacy herbert like to thank our guest wolf richter of the wall street dot com report if you want to catch us on twitter keiser report or the website kaiser report dot com so next time.
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