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Gordon Long

Gordon Long

Mr. Long is a former senior group executive with IBM & Motorola, a principle in a high tech public start-up and founder of a private…

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John Rubino

John Rubino

John Rubino edits DollarCollapse.com and has authored or co-authored five books, including The Money Bubble: What To Do Before It Pops, Clean Money: Picking Winners…

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First ZIRP, Now NIRP!

A Destabilizing Policy - by Gordon Long and John Rubino - Feb 23, 2015

Published 02-23-15
32 Minutes

What is the significance of the dramatic shift from ZIRP (Zero Interest Rate Policy) to NIRP (Negative Interest Rate Policy)?

This is a startling development that changes the investment landscape, strategies and business models of many traditional industries. We have watched rapid developments in Europe unfold with:

Negative Interest rates

NIRP from the Central Banks of:

  • ECB,
  • Switzerland,
  • Denmark
  • Sweden.

We have NIR Bonds from :

  • Germany's BMW,
  • France's LVMH,
  • Britain's BP,
  • Swiss Nestle

 

When money becomes less than free and you get paid interest to borrow all sorts of distortions begin to happen.

EU's emerging "NIRP"


Stock Buybacks

Negative interest rates are inviting companies to be "PAID TO BORROW MONEY" and then use the proceeds to buyback their shares, boost eranings per share and reduce dividend payments.

It has fostered an explosion in stock buybacks

Bonds being used to fund stock buybacks


Fractured Business Models

The question on the table that few can answer is: How do these industries survive with negative rates?

  • Pension Plans,
  • Insurance Plans,
  • Money Funds,
  • Retirement Plans

Industries which have been considered to be the safest places to place money are now being forced into becoming quasi hedge funds to achieve yield. This is a towering change in the world.

If because of this, any one of the participants in any one these industries were to 'blow up' it would add greatly to the already skeptical mistrust of investors.

It is highly likely to trigger a' risk-off' shift 'in a heart beat which would impact credit flows and liquidity! The same thing that happened in 2008.

Chart: How credit pricing reacts to increased liquidity


With Low Interest Rates Not Working - Did The Central Banks Finally Lose Control?

 

Central Banks forced to NIRP like dominoes


First ZIRP, Now NIRP w/ John Rubino

 

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