Sunday, November 19, 2017

Five Hundred Million Dollar Negative Yield Bond Issued


I have permission from Mr. Welsh to repost anything he writes after waiting at least a day or two from his original posting. TW.
by Ian Welsh, Nov. 17, 2017

No, central banks aren�t screwing the economy up with their purchases:
Veolia (Paris:VIE) has issued a 500 million 3-year EUR bond (maturity November 2020) with a negative yield of -0.026 %, which is a first for a BBB issuer.
To be clear, central banks didn�t buy those bonds, investors did. But central bank purchases of government debt are a large part of what is causing this issue.

The ECB (European Central Bank) has been buying SEVEN times the issuance of government bonds. Seven times. Seven times.

They are straight up financing governments (which, done right, could be a good thing, but isn�t in this context).

The problem in the world today is the same as it was 15 years ago, before the financial collapse: There is too much money chasing not enough returns. Because there isn�t enough real growth, that money moves into bubbles and fraud, and destroys companies through leveraged buyouts and so on, but it also means that, if there isn�t enough fraud or predation going on, it sits and stagnates and does nothing worthwhile.

What the developed world actually needs is stuff to invest in, high marginal tax rates (higher on capital gains than on earned income), distributive policies to the bulk of the population to create wide-spread demand, and moderate inflation of about five percent a year to get people to actually invest in new businesses, not in financial speculation.

The problem with this solution set is that if it doesn�t also include effective regulation, it can have to environmentally devastating effects; for instance, because solar is not fully online, the above solution set could lead to oil price spikes.

Those problems, however, are not why this isn�t being done. This isn�t being done because current leadership does not believe in high taxes, wide distribution, or regulation. They are neoliberals, and 40 years of neoliberal disasters cannot convince them to engage anything other than neoliberalism, because neoliberalism has made them and their friends very very rich.

But the game is coming to an end. They want to tax the middle class and poor people, sparing the rich but they are now starting to tax the rich through the back door of negative interest rates. Meanwhile, the poor and middle class, especially the young ones, are losing patience and are willing to go either straight-up socialist or straight-up fascist (the Polish 50K rally).

This is going to get a lot uglier before it gets better.

There will be three choices for countries: Fascism, left-wing populism, or dystopic surveillance/police states.

Choose.

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