Friday, August 19, 2016

Reuters: Global negative-yielding debt still over $11 trillion

Reuters - global negative-yielding debt slips to $11.4T. Quote:

The global amount of negative-yielding government bonds edged down to $11.4 trillion on Aug. 2 from two weeks ago as Japanese debt yields rose in reaction to more official stimulus announcements, Fitch Ratings said on Wednesday.

On July 15, there were about $11.5 trillion in sovereign bonds with negative yields in Japan and Europe, whose central banks adopted negative rate policies and have been purchasing bonds heavily in an effort to stimulate their sluggish economies.

Japanese government bonds accounted for more than half the negative-yielding debt with $7.2 trillion, down from $7.5 trillion two weeks earlier and $7.9 trillion on June 27, the rating agency said.

OK, then riddle me this.

Why shouldn't trillions of dollars of debt be negative-yielding, when:

1) decades of work by the IMF has aimed at making governments more reliable debtors, thus reducing the default risk premium on their debt;

2) there's been a similar move for decades to increase domestic saving worldwide, as a way of making government (and I guess corporate?) debt more sustainable, and an increase in saving should drop the S-I equilibrium rate of interest;

3) there's been decades of pro-rich and pro-corporate tax policy meant to increase the savings of the rich, eliminate corporate taxes and construct tax havens, which again means S-I equilibrium r goes down;

4) there's been decades of anti-poor tax and income policy which would obviously decrease consumer demand in the majority of the population, meaning less investment demand and again equilibrium r goes down;

5) there's been decades of "inflation targeting" that's now built an expectation of periodic massive layoffs and demand destruction whenever inflation goes above 2%, dropping equilibrium r and also reducing the inflation risk premium on debt;

6) there's been decades of political campaigning against government spending, to the point that now the US isn't even meeting its spending requirements to counteract depreciation of public assets, which reduces public investment and increases private savings, again equilibrium r goes down;

7) there's been years of pro-austerity propaganda to the point that the EU, a major economic bloc, explicitly wishes to stay in a prolonged economic depression instead of stimulating demand, which means again higher S and lower I?

Seriously, "secular stagnation" seems a childishly obvious result of decades of political policy. You guys wanted zero inflation and low interest rates, now you got it and you complain?

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