Author Topic: Negative interest rates take investors into surreal territory  (Read 27374 times)

RuleNumberOne

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Re: Negative interest rates take investors into surreal territory
« Reply #160 on: January 18, 2020, 01:33:14 PM »
Italy cannot even afford the interest on its massive debt.

Italy is allowed a deficit of just 0.8% of GDP by the EU. It has debt of 135% of GDP and GDP growth has been zero for a long time. Unless the rates are close to zero, Italy cannot even afford the interest. With a fertility rate of 1.2, Italy is headed for certain extinction, like one of those civilizations that got buried under the sea in folklore.

Unless Germany gifts 100 billion Euros every year to Italy forever, year after year, the Euro won't work. This is what California has been doing forever - gift a massive amount annually to places like Alabama/Mississippi that will never have any growth. German government spending is already higher than the US as a percentage of GDP, so Germany is right that there is no need for it to spend anymore on its own citizens. (Germany has a surplus because it also has higher taxes.)

When laid out this way, anyone in either Germany or Italy can see that the Euro is an insane idea.

Italy's government-seized steel plant churns out toxic waste and fumes. The nearby schools are closed on windy days. Italy cannot even afford a cleanup. Italy is allowed just enough by the EU to survive and pretend that French banks are not bankrupt.

The Emilia-Romagna regional elections are a week from today, lets see what happens.

Regarding US debt, I agree it looks worse than it did in 2007 when a higher Fed rate kept the government disciplined. But the US has competitive advantages that no other country has.

The main reason interest rates cannot go up in Europe is Italy. Interest rates there will stay negative so that Italy can continue to refinance forever.

Italy's fertility rate is 1.32 (lowest in the EU) according to the latest data. That is only because immigrant mothers had a fertility rate of 1.9. Native Italians had a fertility rate of 1.2.

There is no way Italy's $2.3 trillion debt can ever be paid. Which implies there is no way French banks are not bankrupt. But the Eurocrat coverup continues.

Italians hate their plight and keep voting for Salvini. But the Eurocrats won't allow general elections in Italy because Salvini will win easily. The world would be better off without the Euro. The Euro has destroyed or distorted everything.

Government debt will never be repaid. If any government on earth needs to repay debt, and can’t roll it over, they will default. This applies to the US as well. We are running 5% deficit as a percent of GDP in one of the hottest economy ever 10 years plus into a recovery, how would we ever repay debt?  Give it a recession and we run at 10% GDP deficit quickly. Government debt is never repaid, it is only rolled over.


Castanza

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Re: Negative interest rates take investors into surreal territory
« Reply #161 on: January 18, 2020, 01:39:27 PM »
Italy cannot even afford the interest on its massive debt.

Italy is allowed a deficit of just 0.8% of GDP by the EU. It has debt of 135% of GDP and GDP growth has been zero for a long time. Unless the rates are close to zero, Italy cannot even afford the interest. With a fertility rate of 1.2, Italy is headed for certain extinction, like one of those civilizations that got buried under the sea in folklore.

Unless Germany gifts 100 billion Euros every year to Italy forever, year after year, the Euro won't work. This is what California has been doing forever - gift a massive amount annually to places like Alabama/Mississippi that will never have any growth. German government spending is already higher than the US as a percentage of GDP, so Germany is right that there is no need for it to spend anymore on its own citizens. (Germany has a surplus because it also has higher taxes.)

When laid out this way, anyone in either Germany or Italy can see that the Euro is an insane idea.

Italy's government-seized steel plant churns out toxic waste and fumes. The nearby schools are closed on windy days. Italy cannot even afford a cleanup. Italy is allowed just enough by the EU to survive and pretend that French banks are not bankrupt.

The Emilia-Romagna regional elections are a week from today, lets see what happens.

Regarding US debt, I agree it looks worse than it did in 2007 when a higher Fed rate kept the government disciplined. But the US has competitive advantages that no other country has.

The main reason interest rates cannot go up in Europe is Italy. Interest rates there will stay negative so that Italy can continue to refinance forever.

Italy's fertility rate is 1.32 (lowest in the EU) according to the latest data. That is only because immigrant mothers had a fertility rate of 1.9. Native Italians had a fertility rate of 1.2.

There is no way Italy's $2.3 trillion debt can ever be paid. Which implies there is no way French banks are not bankrupt. But the Eurocrat coverup continues.

Italians hate their plight and keep voting for Salvini. But the Eurocrats won't allow general elections in Italy because Salvini will win easily. The world would be better off without the Euro. The Euro has destroyed or distorted everything.

Government debt will never be repaid. If any government on earth needs to repay debt, and can’t roll it over, they will default. This applies to the US as well. We are running 5% deficit as a percent of GDP in one of the hottest economy ever 10 years plus into a recovery, how would we ever repay debt?  Give it a recession and we run at 10% GDP deficit quickly. Government debt is never repaid, it is only rolled over.

Say the euro goes extinct. What does that even look like? What is the path forward from there for European countries? Italy will still have its issue regardless of the euro at this point right?

RuleNumberOne

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Re: Negative interest rates take investors into surreal territory
« Reply #162 on: January 18, 2020, 01:56:07 PM »
No, Italy can pursue whatever fiscal policies it wants if it leaves. I mean even developing countries are much better off, they are not headed for extinction.

I think we can get a 2008-sized meltdown in Europe when Italy leaves with entertaining contagion in European banks. European banks stocks will be worth less than zero unless their respective governments bail them out, which leads to even higher debt-to-GDP ratios in places like France. It will be a real thriller like 2008. If US banks have derivative contracts with European banks, they will go down too.

Salvini has raised a lot of big hopes in Italy with a lot of daring talk, so he has got to do bold stuff when he wins. Like Boris Johnson of the UK, he has gained a lot of popularity very quickly for his anti-EU, big nationalist talk and will have to deliver.

https://www.axios.com/matteo-salvini-chance-to-become-prime-minister-715082d5-bfc6-4f19-8590-9d4485f2a5ce.html

"Where things stand: Any sighs of relief from Salvini's foes, who include French President Emmanuel Macron and many in Brussels, now appear premature.

Salvini and the League have only grown more popular in opposition and lead the PD and Five Star by 10+ points in national polls.
With elections looming on Jan. 26 in the left-wing stronghold of Emilia-Romagna, polls show the League neck-and-neck with the PD, something that would have been unthinkable not long ago.

What to watch, per the FT:

“If the PD lose in Emilia-Romagna, it 100 per cent has the potential to bring down the national government and set Salvini on course to become prime minister,” says academic Daniele Albertazzi.
“This coalition is already so fragile that the only thing gluing it together is their fear of Salvini,” says Erik Jones of the Johns Hopkins School of Advanced International Studies in Bologna. “If they lose it is hard to see how they make it through the spring.”"


Italy cannot even afford the interest on its massive debt.

Italy is allowed a deficit of just 0.8% of GDP by the EU. It has debt of 135% of GDP and GDP growth has been zero for a long time. Unless the rates are close to zero, Italy cannot even afford the interest. With a fertility rate of 1.2, Italy is headed for certain extinction, like one of those civilizations that got buried under the sea in folklore.

Unless Germany gifts 100 billion Euros every year to Italy forever, year after year, the Euro won't work. This is what California has been doing forever - gift a massive amount annually to places like Alabama/Mississippi that will never have any growth. German government spending is already higher than the US as a percentage of GDP, so Germany is right that there is no need for it to spend anymore on its own citizens. (Germany has a surplus because it also has higher taxes.)

When laid out this way, anyone in either Germany or Italy can see that the Euro is an insane idea.

Italy's government-seized steel plant churns out toxic waste and fumes. The nearby schools are closed on windy days. Italy cannot even afford a cleanup. Italy is allowed just enough by the EU to survive and pretend that French banks are not bankrupt.

The Emilia-Romagna regional elections are a week from today, lets see what happens.

Regarding US debt, I agree it looks worse than it did in 2007 when a higher Fed rate kept the government disciplined. But the US has competitive advantages that no other country has.

The main reason interest rates cannot go up in Europe is Italy. Interest rates there will stay negative so that Italy can continue to refinance forever.

Italy's fertility rate is 1.32 (lowest in the EU) according to the latest data. That is only because immigrant mothers had a fertility rate of 1.9. Native Italians had a fertility rate of 1.2.

There is no way Italy's $2.3 trillion debt can ever be paid. Which implies there is no way French banks are not bankrupt. But the Eurocrat coverup continues.

Italians hate their plight and keep voting for Salvini. But the Eurocrats won't allow general elections in Italy because Salvini will win easily. The world would be better off without the Euro. The Euro has destroyed or distorted everything.

Government debt will never be repaid. If any government on earth needs to repay debt, and can’t roll it over, they will default. This applies to the US as well. We are running 5% deficit as a percent of GDP in one of the hottest economy ever 10 years plus into a recovery, how would we ever repay debt?  Give it a recession and we run at 10% GDP deficit quickly. Government debt is never repaid, it is only rolled over.

Say the euro goes extinct. What does that even look like? What is the path forward from there for European countries? Italy will still have its issue regardless of the euro at this point right?

Spekulatius

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Re: Negative interest rates take investors into surreal territory
« Reply #163 on: January 18, 2020, 01:58:19 PM »


Say the euro goes extinct. What does that even look like? What is the path forward from there for European countries? Italy will still have its issue regardless of the euro at this point right?

When Italy had its Lira, they had high inflation and high interest rates. yes, they will have problems either way, one thing they will happen is they there will be an immediate and substantial loss in buying power though currently devaluation, which will make Italian goods cheaper, important more expensive and for new debt the cost much higher. Then there is also the issue that on day one, Italy’s debt will still be denominated in Euro, which then will be even harder to pay back. The only option for Italy’s government is to pull an Argentina and immediately default and cause an exchange of the current debt into Lira notes.

Of course any of the above doesn’t solve the demographically issues (low birth rate etc. ) either.
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RuleNumberOne

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Re: Negative interest rates take investors into surreal territory
« Reply #164 on: January 18, 2020, 02:48:26 PM »
No, I think if they want to support birth rates, they could give subsidies and stuff like that if they leave the Euro. Right now their budget has to be approved by the EU because of their massive debt. The purpose of Italy's whole existence is to pretend European banks are solvent. It is like being a prisoner that is allowed a slice of bread and a glass of water everyday.

They will default immediately when they leave and can start from a clean slate. Presumably they will get a special trade deal from the US because Salvini is part of the Bannon-Trump-Bolsonaro club.

I think the youth in Italy need a fresh debt-free country. Right now they have already lost one generation of youth with their 50% youth unemployment. There may be temporary disruptions, just like Brexit, but they will be better off long-term.

The rest of Europe will then feel the pain. Of course, US hedge funds like Ray Dalio's team, are already on top of all this. They profited from Italy-related disruptions in 2018.



Say the euro goes extinct. What does that even look like? What is the path forward from there for European countries? Italy will still have its issue regardless of the euro at this point right?

When Italy had its Lira, they had high inflation and high interest rates. yes, they will have problems either way, one thing they will happen is they there will be an immediate and substantial loss in buying power though currently devaluation, which will make Italian goods cheaper, important more expensive and for new debt the cost much higher. Then there is also the issue that on day one, Italy’s debt will still be denominated in Euro, which then will be even harder to pay back. The only option for Italy’s government is to pull an Argentina and immediately default and cause an exchange of the current debt into Lira notes.

Of course any of the above doesn’t solve the demographically issues (low birth rate etc. ) either.

SharperDingaan

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Re: Negative interest rates take investors into surreal territory
« Reply #165 on: January 18, 2020, 02:51:22 PM »
You might want to re-familiarise yourself with how the Greek Government Debt Crisis was resolved. The EU already has a template, and Italy is little different to Greece. https://en.wikipedia.org/wiki/Greek_government-debt_crisis

Like it or not, the EU experiment is breaking up. The UK exit will be followed by others, and there is little the EU can do beyond jawbone loudly. Re outstanding debt, all a sovereign need do is declare a debt moratorium, and announce the new repayment terms. Iceland and Greece are just the more recent examples.

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John Hjorth

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Re: Negative interest rates take investors into surreal territory
« Reply #166 on: February 05, 2020, 09:58:51 AM »
Boersen.dk [February 5th 2020] : Ringkjøbing Landbobank A/S [RILBA.CPH] CEO John Fisker : "Negative interest on deposits sends bank customers on cottage hunting: "It's not because I stand and want to sell real estate".

It makes a lot of sense to me, if the customer is affluent. Great time of the year to be a buyer in that particular market here in Denmark. Not sure though, if it's a great time to be a buyer in that particular market, taking the whole & overall picture right now into consideration. Instead of suffering from minus 0.75 percent annually, plus the drag from inflation [YoY ~1.5 percent here in Denmark as of now], why not get at least some joy out of the capital, perhaps even some rental income from the season, if you're not there in that period? [Like rkbabang has done recently.]

No matter the entry point and time of entry during the cycle [well, almost], this kind of capital allocation will likely kill holding cash dearly long term.
« Last Edit: February 05, 2020, 10:16:28 AM by John Hjorth »
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