ZIRP Morphs to NIRP

50
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!

https://www.zerohedge.com/news/portugal-10-year-yield-passes-15-first-ti...

https://www.bloomberg.com/quote/GSPT10YR:IND

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.

TF

About the Author

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turd [at] tfmetalsreport [dot] com ()

  50 Comments

abguy4
Aug 27, 2014 - 3:44pm

I ran some little numbers

Well Turd yah got me thinkin 'bout ZIRP, and ya know how engineers like to think in numbers, so I ran some little numbers for the Loyal troops of Turdistan, ----Just to put it in some perspective, OK?

ZIRP , as we all know, includes the insidious fact that the FED has given probably $80 Billion to the Banks every month for the last Six years. I know, I know, Willie and other authors say it's @200(++) Billion/month, so let's just use round numbers so we keep it simple. Let's use $100B/mo. We multiply 72 months by $100B, and we get 7.2 Trillion. Now.... if we have 100 Million households in the USSA, and we divide 7.2T by 100M we get $72,000 per household.

In other words, IF we wish to establish an equal distribution of fresh printed fiat in this Socialist State of USSA, each of us here is due a check for $72,000.00 nice fresh digits - before the end of the month - and a monthly additional check for $1,000.00 for the foreseeable future. We all share equally in a Socialist State, right?

Now, we spent a trillion dollars and a million lives fighting Fascism in WWII, so I know we don't want to give just to big business, we wanna give to the struggling working man too. I know it's a fact because every political candidate in my life-time has told me so.

So, the heck with givin Dr Fix my address, I'm gonna email Yellen and make sure she has my address AND bank account numbers. I can't wait.~!


Aug 27, 2014 - 4:01pm

I am a bit confused

The Nail In The Petrodollar Coffin: Gazprom Begins Accepting Payment For Oil In Ruble, Yuan

I know this will weaken the dollar, but how exactly does it happen. Can someone explain?

dollars that would have been used to settle this trade will now sit idle on a bankers books, right, but how do those dollars start "coming home" to the US, causing inflationary pressure. Do other nations and corporations begin selling dollars into the FX markets, or T-notes into an increasingly uninterested bond market?

Just curious

Barfly
Aug 27, 2014 - 4:16pm

Dr. J - Dollar death

Perhaps that might be an excellent question for Jim Willie on Thursday?

In my simple brain, I've always thought of that happening as a result of supply and demand. There won't be demand for dollars to settle oil deals with Gazprom. Instead, that demand will shift to rubles and yuan. Therefore, Dollars no longer needed to buy oil, will then be used to bid on other assets or commodities, like real estate in the US, for example, and will begin to work their way back through to the banking structure that produced them. This will result in a glut of dollars which will then bid up the cost of everything, thus, hyperinflation. That's always been my understanding of how this will happen. It may be a bit simplistic and perhaps someone like the Jackass could explain it better.

DeaconBenjamin abguy4
Aug 27, 2014 - 4:27pm

we spent a trillion dollars and a million lives fighting Fascism

So, if you are not from the US, where are you from?

gold slut
Aug 27, 2014 - 4:28pm

@ Craig

This was a particularly good post, even by your high standards. I understand most of what you said already, but having it in black and white in front of you, with the facts and figures, and it really hits. The implications of what you write are very scary... and should leave any right-minded person feeling a bit shaken, if they understand what this means and leads to.

Great article (but scary).

DeaconBenjamin Doctor J
Aug 27, 2014 - 4:31pm

how do those dollars start "coming home" to the US

Chinese move into luxury Manhattan property

By Gianna Palmer Business reporter, BBC News

A room with a view of New York appeals to Chinese buyers

Owning a home on US soil is no longer only an American dream. Increasingly, buyers from China are snapping up luxury property in America, particularly in high-priced markets like New York.

Cynthia Liu, 26, is among the Chinese buyers who have decided to invest in upmarket residential real estate here.

Ms Liu grew up in Beijing but now works in Manhattan, where she recently bought a spacious one-bedroom flat in a high-rise with a view of the city's famous skyline. She is still unpacking boxes, but says she is very happy with her new home.

Cynthia Liu's family view her New York apartment as a better investment than Chinese property

"The amenities are amazing," she says. The modern building boasts a tennis court and swimming pool among its many perks.

Ms Liu's family sold property in China to pay for her new flat, believing that the Chinese real estate market is cooling and American property is a better asset.

"I feel like it's safer to move the money from China to New York and invest in some more stable real estate properties," Ms Liu says.

She recognizes that she's part of a bigger trend.

"I have more and more friends trying to buy apartments," she says, counting off several Chinese friends who've also recently bought flats in Manhattan.

Mind blowing

The real estate sector in New York is scrambling to court buyers like Ms Liu and her peers.

Estate agent Nikki Field is learning Mandarin to help her to sell to Chinese buyers

"We are becoming very, very focused on our Asian neighbour," says Nikki Field, a senior estate agent at Sotheby's International Realty.

Ms Field specialises in selling luxury flats to the Chinese. Since 2008, she has taken regular trips to mainland China to meet potential buyers and has also enrolled in Mandarin lessons and university courses on Chinese business and culture.

The number of her Chinese clients keeps increasing, Ms Field says, and has shown no signs of slowing down so far this year.

The National Association of Realtors reports that the Chinese invested $22bn (£13bn) in American residential real estate in the year ending in March, a nearly 72% increase from the year before.

According to Ms Field a quarter of all buyers in Manhattan came from Asia in the first half of this year.

"This is a mind blowing number," she says.

https://www.bbc.co.uk/news/business-28894478

gold slut
Aug 27, 2014 - 4:45pm

Thank you

That really means a lot and I very much appreciate it.

Fatso
Aug 27, 2014 - 4:46pm

Russia now selling oil for Yuan / rubles

Turd

​I would love it if you could touch on this in a podcast

OR

perhaps we could ask Jim Willie (whom I recently pissed off unintenionally).

Dr. P. Metals
Aug 27, 2014 - 5:08pm

@Dr J

This is an interesting topic (dollars coming home). Since EVERY currency nowadays is FIAT, won't they just "delete key" those that they don't need (all countries) anymore and print more (add key) if they do? I also don't quite get how this works. It all seems fake, on ALL sides, demand or no demand, dollars or rubles, etc, etc...something will have to break this "accounting world" back to reality, but?

Say $5T of dollars DOES come home to roost, can't the FED just hit the delete key on them? They were "made up" to begin withby the print key, so? Viola, no hyper-inflation.

Seriously, this is all SO disconnected from any real, common-sense "system" of money that we don't even KNOW how it works anymore...at least I don't.

EDIT: I think this just all comes down to what people (anywhere) will accept for goods and services (products, oil, gold, computers, food, whatever), and if they "don't want" what you have (e.g. dollars) they won't take them period. Then it's either by threat or use of force (take what you want) or try to "get" what they do want, which may be impossible. All a tangled web me thinks.

Missiondweller
Aug 27, 2014 - 5:40pm

in 2008 NIRP was associated with crisis

Don't know if folks remember but short term bonds went negative for both the Bund and T-Bills in 2008 as people panicked and became concerned about return of capital rather than return on capital. It also has the affect of draining liquidity because it tightens REPO markets which are banks primary source of liquidity w/o going to central banks.

So what's my point? The negative Bund rates may be a sign of market dysfunction and stress in the markets and may be forewarning a decline in equities.

SS121 Doctor J
Aug 27, 2014 - 8:39pm

toward Dr. J's USD question...

The Nail In The Petrodollar Coffin: Gazprom Begins Accepting Payment For Oil In Ruble, Yuan

I know this will weaken the dollar, but how exactly does it happen. Can someone explain?

Their premise is false, that's why the flawed logic doesn't resonate.

The USD

  • The USD is the National Currency for the U.S.A.
  • In the 'system', the USD is the World Reserve Currency (held by Central Banks, used for international trade)
  • In the 'system', the USD is the World Currency Standard (benchmark by which all other fiats are measured)

TPTB can NOT write stories that : The USD is no longer used as the U.S. National Currency (obviously)

And TPTB can NOT write stories that : The USD is no longer the World Currency Standard (it is the single fiat currency by which 100% of all other fiats are valued)

So they write stories that countries are sometimes using their own currencies for trade and that this is a sign-

(: "Nail in the Coffin!!") that the USD is dying.

It's just a story. ...or just "another" story, that TPTB are pumping as the sun sets on their dying 'system'.

Just keep stackin' it up, and unless absolutely necessary- don't let go of any physical Silver as long as the system's silver chart is still setting the prices!

The system is dying, not the USD.

Time is now on the side of those holding Dollars, or preferably Silver, and who are NOT in the 'system'.

Safety Dan
Aug 28, 2014 - 12:29am

US T Bonds..

https://www.tfmetalsreport.com/comment/267131#comment-267131

Crunch Time: Fiscal Crises and the Role of Monetary Policy

EXECUTIVE SUMMARY Crunch Time: Fiscal Crises and

Countries with high debt loads are vulnerable to an adverse feedback loop in which doubts by lenders lead to higher sovereign interest rates which in turn make the debt problems more severe.

We analyze the recent experience of advanced economies using both econometric methods and case studies and concluded that countries with debt above 80% of GDP and persistent current-account deficits are vulnerable to a rapid fiscal deterioration as a result of these tipping-point dynamics. Such feedback is left out of current long-term U.S. budget projections and could make it much more difficult for the U.S. to maintain a sustainable budget course. A potential fiscal crunch also puts fundamental limits on what monetary policy is able to achieve.

In simulations of the Federal Reserve’s balance sheet, we find that under our baseline assumptions, in 2017-18 the Fed will be running sizable income losses on its portfolio net of operating and other expenses and therefore for a time will be unable to make remittances to the U.S. Treasury. Under alternative scenarios that allow for an emergence of fiscal concerns, the Fed’s net losses would be more substantial.

The author of this paper is Benny B's mentor - Frederic Mishkin

If the Fed's cannot make payments to the US Treasury, what will happen?

Treasury Bonds or 'Carter Bonds' were issued in 1978 by the US Treasury, denoted German Marks & Swiss Francs.

https://books.google.com.ph/books?id=XzJTuzqAmNoC&pg=PA269&lpg=PA269&dq=US+bonds+Carter+bonds+francs&source=bl&ots=JjmITBH-fC&sig=SQ_98bGwvEaXAqd1p9KTZfo-fYY&hl=en&sa=X&ei=Z8_yU_z-BcXZoASvoIGoAQ&redir_esc=y#v=onepage&q=US%20bonds%20Carter%20bonds%20francs&f=false

Carter bonds were used to stablize the "Full faith and credit" of the US Dollar. I wonder if they will need to do that again?

Safety Dan
Aug 28, 2014 - 12:34am

Clarification on Bonds & Markets

The Bond Market Explained for Mohamed El-Erian

Posted by: EconMatters

Post date: 08/15/2014 - 15:49

The fundamental mistake is to think in terms of a low yield telling you anything about the economy, as it is price that you should be focusing on.

Business Media Rock Star

On Thursday Mohamed A. El-Erian was on CNBC`s Halftime Report and he said something that a lot of people have been saying regarding the bond market, and it needs to be cleared up, because the amount of poor understanding regarding the bond market by people who make their living, i.e., are in the financial market business is astounding. It is even more mind blowing given that Mohamed A. El-Erian actually worked at a Bond Firm in PIMCO, and helped manage Harvard` s endowment in the past.

Read More >>> The Pitfall of Rock Star Economists

Just Mirrors What Everybody Else Says

He reiterated what many have said, and I will paraphrase that the Bond Market and Stock Market are telling you two different stories about the economy. This is just flat out wrong, and shows a poor understanding of what has been going on in the Bond Market ever since QE and zero percentinterest rates became the default central bank policy. And frankly it is a mistake that should never be made by someone who worked at PIMCO, a firm that specializes in bonds for goodness sake! I know his role was mainly to represent PIMCO and go on Television, and create exposure for the firm, but he has access to the best minds of the industry every day, and he is completely clueless when it comes to such an important distinction regarding the bond market. Moreover, since many people make this same mistake I thought I would clear this false notion up once and for all regarding bonds.

Read More >>> The Bond Market Explained For CNBC

You've seen the proof that U.S. government finances are a mess. You've heard the arguments that we're undermining the dollar's unique status as the world's reserve currency with toxic amounts of debt. You know it's not going to end well.

See this video - https://www.youtube.com/watch?v=JDWVvMZWy7Y

​See this Presentation on Sovereign borrowing outlook:

https://www.slideshare.net/OECD-DAF/oecd-sovereign-borrowing-outlook

Enjoy, and looking forward to your comments..

SE
Aug 28, 2014 - 2:46pm

Difference between fiat and gold

In regards to NIRP. Let me ask... If you have gold/silver, and you need a warehouse to hold it for you so that you can use it as a check/debit card instead of having it on your person, why should said warehouse not charge you for the service of safekeeping? It would be like a mechanic selling you parts for the repairs needed MINUS his labor. Who in hell would do that? Banks! They did it because of the fractional banking system. Interest was a way to keep people in paper, and out of tangibles.

Is there any POSSIBILITY that one reason banks went to ZIRP for several years, and now NIRP for personal savings and CD accounts is to soften up customer's expectation of interest rates in anticipation of a return to some sort of metal-backed money, or even gold-silver itself? Imagine going from savings with 5-7% straight to a gold/silver standard where you have to pay a nominal fee for metal storage/account management. I would think that the former option of gradually eliminating interest payments in favor of fees for metals storage would be a more survivable strategy than the sudden shift with no mental preparation of the public.

This is assuming that the gold that we're supposed to have nationally exists, so that may not be a valid reason why we have transitioned thus far to NIRP. If it is a valid reason, then it won't end there and instead end up as storage/maintenance fees with no pretentions about interest rates, not even negative rates. Just like storage fees for storage facilities. You pay so much a month or a year to store something of value to you.

ancientmoney
Aug 28, 2014 - 5:57pm

Turd, Chris Powell of GATA sees it differently . . .

He thinks PM prices can still be driven lower, because the CBs can underwrite unlimited sales of paper gold and silver:

"Central bank gold sales and leasing, the underpinnings of the world's fractional-reserve gold banking system, whereby huge amounts of imaginary "paper" gold are created to nullify gold's scarcity and suppress its price, were always plainly mechanisms of "financial repression" to defend currencies and government bond prices. So amid the descent into negative real interest rates, what is to prevent central banks from underwriting still more "paper" gold for price suppression?

Such a policy probably could be defeated only by 1) mass exposure, which would require the mainstream financial news media to stop averting its gaze and to resolve to hold government to account; 2) a major sovereign foreign-exchange surplus holder's decision to switch its surplus heavily and abruptly into gold to strike a political blow; or 3) by the simple exhaustion of the gold reserves of the nations participating in gold price suppression, the circumstances that collapsed the last acknowledged mechanism of price suppression, the London Gold Pool, in March 1968:

https://en.wikipedia.org/wiki/London_Gold_Pool

The point here is that natural, economic, and even societal laws are disintegrating throughout the world under the pressure of what is essentially totalitarianism, the totalitarianism of central banking, which thrives only because, like the new clothes of the emperor in the fairy tale, it cannot be acknowledged for what it is -- cannot even be examined and questioned."

He does provide for possible solutions, however.

https://gata.org/node/14381

ancientmoney
Aug 28, 2014 - 6:11pm

Yes, I know

We've been emailing each other about that today. In fact, he pointed out to me that the title had a misspelling so I changed "Morphes" into "Morphs".

transplanted baby
Aug 28, 2014 - 7:20pm

Agree with Chris Powell

I agree with Chris Powell that TPTB can trash gold more thru paper sales. But it can't go on forever- I think. Someone on a previous thread mentioned that the weak hands have been shaken out and gold is now being held by "strong hands". The question then becomes "At what fiat price are these strong hands going be willing to trade gold for fiat?" If you are really hard core- no fiat price will be acceptable. What will the world look like then?

Bongo Jim
Aug 28, 2014 - 9:01pm

Stong hands and hard core

"If you are really hard core- no fiat price will be acceptable."

The question arises what are you holding you PMs for? At what price will you say uncle? Then the question is what will you do with the fiat? Will it be so inflated at that time that a loaf of bread is $50? Will there be an inequity of tangibles that make for a good trade? Will your timing be right that you can get out at the top (or near) and trade for something that now is in a bubble but then will have deflated? Or is it insurance so after the crash/reset you can use it to stay alive/thrive? As it has been said, everything has a price...what's yours?

SIlverbee
Aug 29, 2014 - 8:18am

Mr Bologna Sausage is back pedalling

All the technical analysis to make it seem like science and difficult for the layman and then back track if it starts to look like your predictions are wrong; Ha!

Was saying $2000 by Christmas now nearer $2000 than $1300. Wow what a prediction I could have said that but I don't get posted on numerous PM sites. So if its $1650 is is still right, hmm, wait lets see if we get nearer the time he don't come back with another blog with the price at $1575 and claim a victory?

lamare ArtL
Aug 30, 2014 - 10:30am

Re: What would you trade your silver for when the Silver..

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

I hope to be able to buy a farm with some land when this happens, along the lessons of The Great Hernán P.:

https://gonzalolira.blogspot.nl/2011/02/inflation-hyperinflation-and-real.html

[Real] estate sellers—who depend on lenders to provide their buyers with credit in order to sell their properties—are forced to lower their prices, in order to attract buyers. Law of supply and demand: They cannot force up the price of their real estate to match the pace of inflation, because if they do, they will simply not have any buyers.

[...]

And when there is hyperinflation, real estate prices of all sorts—residential, commercial, industrial—go into a free-fall: Their prices crash and burn, completely and utterly.

This situation—crazy though it may sound—is exactly what happened in Argentina, in 2001: The Argentine peso went into a hyperinflationary breakdown, the causes of which are irrelevant to the present discussion. But because of this, no bank would lend money to purchase any real estate.

Thus, real estate prices plunged in Argentina.

I have a family friend here in Chile, an attorney named Hernán P., who made one of the shrewdest investments ever: At the height of the Argentine crisis in 2001, he bought an apartment in one of the most fashionable neighborhoods in Buenos Aires: A lovely and luxurious full-floor apartment, across the street from the Four Seasons.

It’s price before the crisis? $650,000. The price Hernán P. paid at the height of the crisis? Less than $90,000. Here’s the kicker: He was the only buyer. Of course, he had to pay in cash—no mortgage loans were available. In fact, he had to pay in cash cash: He was required by the seller to close the transaction with actual physical dollars.

I believe silver (and gold) coins will soon be about the only money that can count as "actual physical dollars" in this Argentina example.

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