Tags: Warner | negative | rates | bond

Telegraph's Warner: Negative European Rates Signal Impending Doom

By    |   Thursday, 30 April 2015 06:40 AM

A whopping 30 percent of government debt in the eurozone — approximately 2 trillion euros worth — now carries a negative yield, and that amounts to a financial crisis in the making, says Jeremy Warner, assistant editor of The Daily Telegraph.

The 5-year German government bond yields negative 0.11 percent.

"What makes today's negative interest rate environment so worrying is this: to the extent that demand is growing at all in the world economy, it seems again to be almost entirely dependent on rising levels of debt," Warner writes.

"The financial crisis was meant to have exploded the credit bubble once and for all, but there's very little sign of it. Rising public indebtedness has taken over where households and companies left off."

Global central bank easing has led to frothy financial markets, Warner explains. "The bond market bubble is just the half of it. Since most other assets are priced relative to bonds, just about everything else has been going up as well."

And what's the endgame?

"Eventually, there will be a massive correction, in which creditors will suffer sickening losses," Warner maintains. "Nobody can tell you when that moment will arrive," he argues.

"Both Keynsian and monetary economics seem to be in some kind of end game. What comes next is anyone's guess."

There's another problem with low interest rates: savers, particularly retirees, are getting hammered.

In the United States, the Federal Reserve has kept its federal funds rate at a record low of zero to 0.25 percent since December 2008, making a mockery of savers' attempts to earn decent income through savings accounts, CDs, money-market accounts and bonds.

The impact is particularly severe on those in or near retirement, who are dependent on income from their investments.

"We're frustrated," Steve Raatz, a 59-year-old Dallas resident, tells The Wall Street Journal, speaking of himself and his wife. "CDs and Treasurys, we don't even look at those anymore because the rates are so low they're ridiculous."

The highest 1-year CD rate listed on Bankrate.com Wednesday was 1.23 percent at Synchrony Bank. And the 5-year Treasury yielded just 1.44 percent. Many money-market funds yield only 0.01 percent.

"We're in this pickle," Chad Carlson, director of research at Balasa Dinverno Foltz, a wealth-management firm in Itasca, Ill., tells The Journal. "You need to get more than 2 percent return for retirees. Even with inflation lower right now, you're basically treading water."

Consumer prices declined 0.1 percent in the 12 months through March.

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A whopping 30 percent of government debt in the eurozone — approximately 2 trillion euros worth — now carries a negative yield, and that amounts to a financial crisis in the making, says Jeremy Warner, assistant editor of The Daily Telegraph.
Warner, negative, rates, bond
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2015-40-30
Thursday, 30 April 2015 06:40 AM
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