ZIRP Morphs to NIRP

Wed, Aug 27, 2014 - 11:29am

Never in my wildest dreams did I envision having a job where I wrote about acronyms like "ZIRP" and "NIRP". But, I guess, never in my wildest dreams did I think that the world would get as utterly screwed up as it is.

First, just to make sure we're all on the same page...

ZIRP: https://en.wikipedia.org/wiki/Zero_interest-rate_policy

ZIRP is the official policy of The US Federal Reserve and it has been since The Great Financial Crisis of 2008...which I might remind you was SIX FREAKING YEARS AGO.

NIRP: https://www.zerohedge.com/news/2014-06-05/nirp-has-arrived-europe-offici...

NIRP is still so new that there's not a even Wikipedia page for it yet. Maybe we should start one? If we don't, someone will. NIRP is Negative Interest Rate Policy and it's here to stay. This is where you pay interest to the bank or some other "lender" like a government for the privilege of having them hold your cash for you.

Why does this matter and why I am bringing this up again today? Because it's just another reason that gold (and silver) are NOT going dramatically lower from here. All of the TA-only fools who count their waves and draw their lines are simply checking their brains at the door and not using common sense. Just as the laws of supply and demand will prohibit another steep drop in price, a world of NIRP will do the same. For when the world is so awash in fiat currency that lenders are actually able to charge interest to their borrowers, that's a pretty telling sign that the devaluation of paper money continues at a breakneck pace. "Investors" may, so far, be slow to return to the safety of precious metal. With NIRP as the new norm, that won't last much longer.

As we've been chronicling since January, U.S. rates have been falling all year...dramatically. Though nearly every "analyst" was projecting higher rates in 2014 due to the alleged "taper" of QE, long-term rates have instead fallen nearly 25%! The 10-year Note, which began the year at 3.0%, has a yield this morning of 2.37% and the 30-year Long Bond, which began 2014 at 4.0%, sits at 3.13%.

But that's just the U.S. Did you know that, in Germany, rates are now negative out to three years and that the 10-year Bund is now yielding just 0.90%? https://www.zerohedge.com/news/2014-08-27/greatest-depression-german-yie...

And to give you some idea of the scale and magnitude of all of this, take a quick look at Portugal. Yes, that Portugal...the one with worst banking system in all of western Europe...the one that just saw its second largest bank get wiped out. Yes, that Portugal...the "P" in "PIIGS, for heaven's sake! Two and a half years ago, the yield on a 10-year Portuguese Note surpassed 15%. One year ago, it was still near 7%. Today? It's now near 3% and falling!



What in the name of Jim Grant is going on here?

It's simple, really. After 5+ years of global QE, the world is awash in cash. It's everywhere and permeating everything, from stocks and bonds to luxury real estate. And when you're a hedge fund that is flush with cash and desperately looking for a "safe place" to park it, you'll actually pay the German government interest to hold onto it for you. You might even be outright crazy enough to think that earning 3% from the Portuguese government is a good deal.

And, in this environment, where the cash is going to keep flowing and the fiat devaluation is only going to continue, do you really expect higher U.S. interest rates anytime soon? And, as you know, despite all of the Fed and CNBS jaw-boning, the U.S. can't afford higher rates anyway because of the near-immediate impact on the interest payments of the accumulated $17T+ national debt.

Therefore, the charts below are extraordinarily important as you assess the future trend of precious metals prices. Will prices fall below The Double Bottom of $1180 and head to $900 as some of the chartreaders are saying or will real world practicality take over? I know that these charts aren't perfect and that the scales for each side aren't exact but, nonetheless, you can plainly see the long-term correlation between interest rates and paper gold trading. As rates fall, gold prices rise. Why? Primarily because your classically-trained hedge fund manager recognizes that low and negative rates/real rates are, and have always been, a solid rationale for owning precious metal.

"So, I'm confused. What's the point of all this, Turd?"

Look, if you accept the notion that:

  1. Global interest rates are not headed higher, and
  2. Low/negative interest rates historically cause gold and silver prices to rise

Then you can rightly assume that gold prices ARE NOT headed lower, regardless of what some Wave Counter might think. In fact, should rates continue falling in the very near term, we should expect a sudden reversal in the short-term trend of gold, very likely as soon as market participants and depth return following the end of summer holidays. You can see it in this 2014 chart of the Long Bond vs gold:

And you can see it in this chart of just gold by itself. Price has bottomed again at the intersection of the long-term trendline from May 2013 and the short-term support line for 2014:

So, don't let your heart be troubled by this current decline. As you know, this is all playing out as predicted back in June after price first broke through the long-term trendline. And, for all of calendar 2014, the price action is proceeding along nicely toward the goals we laid out back in January. Again, recognize all of this for what it is and plan/prepare accordingly.


About the Author

turd [at] tfmetalsreport [dot] com ()


Aug 27, 2014 - 11:36am


the NIRP!

Lunatics run this parade. I'm glad gold is still offered for FRN's....

Aug 27, 2014 - 11:39am

zirp = hegemony?

So, if the interest rate is zero, does it mean that the issuing party has so much strength that they do not need to pay you interest? I guess it says that the issuer is so strong, you will just give them your money because either (a) they can seize it anyway and (b) there is no where to run to...no where to hide.

Video unavailable
Aug 27, 2014 - 11:40am

Nope. Nothing to see here...

Unbelievable. Literally.

Aug 27, 2014 - 11:51am

Butler's Silver Bubble

If the price of silver does explode because of the investment and industrial demand, Butler says he will sell silver. He does not seem to have any concept of the collapse of the US dollar or he might suggest he'd trade some of his silver for other real assets. Has he focused so much of his attention on silver and might be missing the larger picture, of which silver is a part. Please don't think I am bashing Butler, I value his insights and work over the last several decades, however, silver is not the entire picture.

What would you trade your silver for when the Silver price explodes?

Aug 27, 2014 - 11:53am


I think I'll make this public and send it over to GATA tomorrow.

Aug 27, 2014 - 11:53am

My Stack Is Gaining

Interest. (From Me and I Guard It With My Life) Keep Stacking

Aug 27, 2014 - 12:59pm


One currency, one bank so we can monitor and control all their spending and savings, the savings must be spent cannot have the peasants holding their precious too close, we need it, no interest paid, we can charge them a tax on thei savings, whoops I mean NIRP, and we can print money out of thin air to lend 'em when they get their arse's in a crack! let high real estate and pretty pictures go to the moon, the working class can't afford them anyway so we can keep our precioussss's safe !

Shit keep that gold down - can't have the unwashed hide that up or make a profit there, oh no! we can't print that!

Now what are we gonna do about them pesky Russkies and Chinee? they don't want our scrip anymore, maybe a nice war, we should check with the Rothschildes , need a big one though, all these minor skirmishes are starting to tell, fire up the propaganda machine , issue orders to Obama and Merkel etc and prepare the Presstitutes and its on like stank on shite!

Damn there's that gold price trying to rise again - Elites to Monkeys - "get moving its 3 am you know the drill!"

Hey there seems to be a run on Pitchforks and Rope anyone know why?

Aug 27, 2014 - 1:05pm

@Turd - Why interest rates can never be allowed to rise

Turd - really appreciate you continuing to hammer the fact that despite what the Fed says in public, interest rates can never be allowed to rise. What if in contrast to the consensus view that interest rates will be trending higher over the next four years, the US follows Japan and Europe into NIRP. I've come up with a basic look at interest expense under a scenario where we assume that unicorns and rainbows still rule the economic day. If we assume that there is no major recession and that the US avoids WW3, then we can assume that the increase in US debt would be about $600 billion per year. Take a look at what happens to interest expense should the US head towards NIRP. Interest expense actually decreases. What if I am conservative on how slow the path to NIRP is? What if avg interest rates get down to 1.75% on $20 trillion on debt? The interest expense would only be $350 billion. This could conceivably continue for a decade as long as TPTB hold things together (no war and no major recession). 2013 US debt outstanding: $16.74 trillion 2013 avg. interest rate: 2.46% 2013 interest expense: $416 billion 2014 proj. US debt outstanding: $17.8 trillion 2014 proj. avg. interest rate: 2.41% 2014 proj. interest expense: $430 billion 2015 proj. US debt outstanding: $18.4 trillion 2015 proj. avg. interest rate: 2.35% 2015 proj. interest expense: $432 billion 2016 proj. US debt outstanding: $19.0 trillion 2016 proj. avg. interest rate: 2.2% 2016 proj. interest expense: $418 billion 2017 proj. US debt outstanding: $19.6 trillion 2017 proj. avg. interest rate: 2.05% 2017 proj. interest expense: $402 billion Good link below: https://news.goldseek.com/GoldSeek/1409148480.php

Aug 27, 2014 - 1:11pm

Yep, that would be the idea

And, in your data, you can clearly see HOW and WHY rates can't be allowed to "normalize", regardless of the endless BS that streams from your television.

At 2016 4.4% instead of 2.2, you get an interest line item of $836B.

At 2017 6.15% instead of 2.05, you get an interest line item of $1.2T.

The deficit explodes and this accelerates the demise of The Ponzi as greater and greater supply of fresh fiat is necessary to float the US government.

Aug 27, 2014 - 1:11pm


Now some people pay a vaulting service to store their gold--I suppose that is kind of like NIRP, if you feel that they offer a safer location for you metal. And if I trust that service, I see the sense in storing metals there rather than in my pond

But the bank stores your ones and zeroes on their computer, then charges you money? Where is the safety in that--especially when the biggest threat of theft is a Bail-In from that same bank.

Crazy world, getting crazier and we are stuck in it.

If you like, you can come to my place, engrave your name on each of your bars, and toss them in the pond for safekeeping. I don't charge much. But it is kind of dry out here in AZ. I'll have to get more water somewhere if this keeps up. I think I can see the tops of some bars after a really hot day.

Hey! Stop rolling your eyes. Its better than a bank!

Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

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Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

Key Economic Events Week of 10/7

10/8 8:30 ET Producer Price Index
10/9 10:00 ET Job Openings
10/9 10:00 ET Wholesale Inventories
10/9 2:00 ET September FOMC minutes
10/10 8:30 ET Consumer Price Index
10/11 10:00 ET Consumer Sentiment

Key Economic Events Week of 9/30

9/30 9:45 ET Chicago PMI
10/1 9:45 ET Markit Manu PMI
10/1 10:00 ET ISM Manu PMI
10/1 10:00 ET Construction Spending
10/2 China Golden Week Begins
10/2 8:15 ET ADP jobs report
10/3 9:45 ET Markit Service PMI
10/3 10:00 ET ISM Service PMI
10/3 10:00 ET Factory Orders
10/4 8:30 ET BLSBS
10/4 8:30 ET US Trade Deficit

Key Economic Events Week of 9/23

9/23 9:45 ET Markit flash PMIs
9/24 10:00 ET Consumer Confidence
9/26 8:30 ET Q2 GDP third guess
9/27 8:30 ET Durable Goods
9/27 8:30 ET Pers Inc and Cons Spend
9/27 8:30 ET Core Inflation

Key Economic Events Week of 9/16

9/17 9:15 ET Cap Ute & Ind Prod
9/18 8:30 ET Housing Starts & Bldg Perm.
9/18 2:00 ET Fedlines
9/18 2:30 ET CGP presser
9/19 8:30 ET Philly Fed
9/19 10:00 ET Existing Home Sales

Key Economic Events Week of 9/9

9/10 10:00 ET Job openings
9/11 8:30 ET PPI
9/11 10:00 ET Wholesale Inv.
9/12 8:30 ET CPI
9/13 8:30 ET Retail Sales
9/13 10:00 ET Consumer Sentiment
9/13 10:00 ET Business Inv.

Key Economic Events Week of 9/3

9/3 9:45 ET Markit Manu PMI
9/3 10:00 ET ISM Manu PMI
9/3 10:00 ET Construction Spending
9/4 8:30 ET Foreign Trade Deficit
9/5 9:45 ET Markit Svc PMI
9/5 10:00 ET ISM Svc PMI
9/5 10:00 ET Factory Orders
9/6 8:30 ET BLSBS

Key Economic Events Week of 8/26

8/26 8:30 ET Durable Goods
8/27 9:00 ET Case-Shiller Home Price Idx
8/27 10:00 ET Consumer Confidence
8/29 8:30 ET Q2 GDP 2nd guess
8/29 8:30 ET Advance Trade in Goods
8/30 8:30 ET Pers. Inc. and Cons. Spend.
8/30 8:30 ET Core Inflation
8/30 9:45 ET Chicago PMI

Key Economic Events Week of 8/19

8/21 10:00 ET Existing home sales
8/21 2:00 ET July FOMC minutes
8/22 9:45 ET Markit Manu and Svc PMIs
8/22 Jackson Holedown begins
8/23 10:00 ET Chief Goon Powell speaks

Key Economic Events Week of 8/12

8/13 8:30 ET Consumer Price Index
8/14 8:30 ET Retail Sales
8/14 8:30 ET Productivity & Labor Costs
8/14 8:30 ET Philly Fed
8/14 9:15 ET Ind Prod and Cap Ute
8/14 10:00 ET Business Inventories
8/15 8:30 ET Housing Starts & Bldg Permits

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