The new normal and why crushing debt loads actually lower interest rates

The new normal of centralized control

Those familiar with my writings  already know that the central banks will never again be able to normalize monetary policy. The policies of pre-2008 will never again be revisited. Prior to that time, there was enough traditional investor demand for the debt that the global economy generated. But that ship has now sailed.

Since then we have entered a new normal; a world of crushing debt loads that will continue to rise every year, permanent central bank intervention, and historically low interest rates. Even in the United States, short-term rates will eventually fall below zero percent and the average person will be consumed under a debt tsunami. Longer-dated bond yields will continue to fall over time as well. As long as the central banks place the national governments under a permanent IV-drip, the average person will continue to be punished under ever-rising austerity.

It may seem counterintuitive to conclude that interest rates will fall as the global debt levels build, and under the old normal, interest rates would be rising. But under the new normal, central banks stand ready to buy up any and all debt that organic demand cannot absorb. Moreover, to ensure ever lower rates, the central banks will always buy a little more than necessary, which will guarantee lower debt yields as time goes on. Thus, the world economy will be dwarfed by its oversized debt liabilities. The entire economy will continue to be dragged down as a larger proportion of the economic engine is devoted to servicing outstanding debt.

Do not worry about debt repudiation. By the time the central banks have cranked up QE for another few years we will be wishing for government bankruptcy. The central banks will make sure that every dollar of debt is accounted for and held on the economy’s balance sheet, to be serviced to our deaths.

Structural QE will sink the average debt-slave. Those who respond properly will prosper.

This is all highly deflationary. Imagine a family that is consumed with debt. How much money can they devote to buying items? The answer is not much. Imagine a country that is consumed with ever rising debt levels. How much money can its citizens devote to increasing demand to drive up prices? The answer, once again, is not much.

If we think these stimulus programs are doomed to fail and things will collapse in on themselves, all we have to do is look to Japan for an idea of how long the central banks can continue to enslave humanity. So far, the Bank of Japan has been dutifully buying up the entire Japanese economy since the early 1990’s. I am planning for the new normal; knowing that QE will be carried until every last dollar of economic activity is devoted to debt servicing.

The Fed and ECB Confront a New Normal That Looks Like Japan’s

As this Bloomberg article titled, The Fed and ECB Confront a New Normal That Looks a Lot Like Japan’s, makes perfectly clear, the global economy has entered a new normal.

“The developed world is at risk of mirroring the experience of Japan, whereby the very low equilibrium rate of interest appears to be a semi-permanent feature,’’ former Treasury Secretary Larry Summers and Bank of England Senior Economist Lukasz Rachel wrote in a paper published on Thursday.

The actions by the ECB and the Fed fanned speculation that the central banks’ efforts to return policy to what formerly would have passed for normal is ending and their next move will be to ease, not tighten, credit.

Policy makers in the U.S. and Europe are grappling with problems that have plagued Japan for decades: slow-growing economies and stubbornly low inflation, brought on by aging populations and lackluster gains in productivity.

The Fed and ECB Confront a New Normal That Looks a Lot Like Japan’s – Bloomberg, March 7th

It is clear that inflation under traditional measures has not been rising and this gives the monetary policy makers the green light for the ECB and Fed to begin more massive rounds of QE. While inflationary pressures may look to be subdued, the cost of living continues to escalate. This is especially true for those who cannot control spending and stay out of debt.

If Japan’s 25-year QE program is a failure, why was it copied and implemented worldwide?
The BOJ’s decades-long stimulus policies have failed as intended, but are being promulgated worldwide.

The elite and their controlled think-tanks publicly say Japan’s monetary policy is missing the mark.  However, privately, the elites view the BOJ’s monetary “stimulus” and its continual war on price and asset market deflation as wildly successful. Through the Bank of Japan’s perpetual sovereign debt, stock, and infrastructure purchases, the elites have been able to consolidate their global wealth while publicly lamenting the shortcomings of QE.

Japan’s decades-long experiment  with unconventional monetary policy has been so successful, the elite decided to implement similar monetary policy strategies around the globe with their other major central banks. The elite see how Japan is suffocating under an ever-increasing debt millstone and rejoice. Through their QE “stimulus,” the elite have been able to consolidate their power and control over the economy, while concentrating the wealth into their hands.

Responding to the new normal

So, if we are to persevere and move forward in this new normal, we need to take action and respond to a world of ever dropping interest rates. Contemplate what lower interest rates will mean to our wages. Imagine what these ever growing debt burdens will mean to our cost of living. Imagine what lower rates will mean for asset prices.

  • For those in boatloads of personal debt (debt that does not have offsetting income), life will be not worth living.  While inflation may not be rising fast, the costs of living will escalate higher.
  • Wages will struggle as businesses continually strive to increase profitability. Automation and efficiency will marginalize more people. The new world order’s open-borders agenda will arbitrage labor costs between high-cost and low-cost nations.
  • As bond yields fade, asset prices will rise ceteris paribus, because investors will accept lower capitalization rates and IRRs, and higher P/E ratios. Any asset bust will be seen as a buying opportunity. The world will be awash in a virtually unlimited collateral pool of sovereign debt.

Look to see the BOJ experiment become mainstream in the rest of the developed world. It has proven wildly successful to the elite. If we are to be one of the few to stay ahead we need to think outside the box, take on less personal debt and build an income-generating asset balance sheet.