Bank for International Settlements Warns on Low Rates
According to an article in the Telegraph, the Bank for International Settlements warned that low bond yields and interest rates would push the boundaries of political and economic stability to a breaking point if they continue there downward trend. (Source:telegraph.co.uk 2015 March 18th)
The Bank for International Settlements (BIS) is based in Switzerland and its function is to be the bank for the Central Banks. The article in the Telegraph referenced that $2.4 trillion of long term global sovereign debt is now trading at negative yields. The BIS said that 20 Central Banks have eased monetary policy in the last 3 months alone.
Claudio Borio, head of the Monetary and Economic department at the BIS said "As bond markets show us day after day, the boundaries of the unthinkable are exceptionally elastic”. Meaning that the consequences of historically low rates, should they continue, will be significant.
Nine Countries have Debt-to-GDP of over 300%
Of course the biggest reason why bonds yields continue to trade at historic lows is because of the massive amount of debt in the system. According to an article on ZeroHedge, at least 9 countries have debt-to-GDP of 300%. And even more incredible statistic is that 39 countries have debt-to-GDP of 100%. (Source: ZeroHedge 2015 Feb. 23rd)
The article estimates that over the last 5 years the Central Banks have printed over $12 trillion in credit money. Have some of you wondered how the stock markets are trading at record highs when the broader economy is in deflation? Much of the $12 trillion of printed money has ended up in the global stock markets.
The recent protests and demonstrations in Frankfurt are an example of how austerity is not going to work. People are beginning to understand that Central Bank policies only serve the very wealthy. The policies do little to help small business owners and the real economy. The only option for the Central Banks is to monetize the debt which means that currency debasement is the likely outcome.
No one knows exactly how this will all play out. However, if history is used as a guide, then the personal financial solutions become clearer. Physical Gold and Silver have always come through during times of financial crisis and instability.
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