I’m not so sure that central banks have much of a choice when it comes to cutting interest rates, given the dynamics of fiat currencies with an exponentially growing debt load, but the fact that the mainstream financial media is even publishing Pelletier’s analysis is, in itself, a warning sign.
The issue now is that central banks appear close to implementing yet another round of QE, not to stabilize markets but simply to absorb the massive issuance of government debt. That’s where the real danger emerges: currency debasement. When a central bank prints money to finance deficits, the purchasing power of that currency erodes rapidly.
Now is an ideal time to revisit your portfolio. Start by examining your government bond exposure, especially in jurisdictions such as Canada, where the federal government holds no gold reserves and where 10‑year yields near three per cent offer little compensation for the level of risk.
The government of Canada has roughly half the debt and deficit as the United States, so I’m not too concerned about Canada. The provinces are a different story. Some of them have been highly irresponsible.
Irresponsible? Like Manitoba? Perish the thought!
Half the debt and deficit of a country ten times larger? And you don’t see a problem with that?
No, K.M. is correctly saying that Canada’s per-capita federal debt is half that of the U.S. per-capita debt.
BTW, I agree with Martin Pelletier in the posted article. This is no time to run QE with war clouds in the offing. It’s a sure fire way to trigger a serious inflation.
is that “Net Debt” or gross in the calculation?
Because Canada’s “net debt” includes assets like CPP, EI, and the various pensions for fedgov workers, which can’t be used to pay off the debt.
“No, K.M. is correctly saying that Canada’s per-capita federal debt is half that of the U.S. per-capita debt.”
No, KM did not mention anything about it being ‘per-capita’, therefore he is *not* correct. He made a blanket statement about Canadian debt and deficit being half that of the US, which is wrong.
“…and where 10‑year yields near three per cent offer little compensation for the level of risk…
Here, let me finish that sentence for you:
… and fall far short of even covering the losses due to inflation.”
And interest income gets no special tax treatment! At least dividends improve your after tax return!
“In my view, the roots of this moment trace back to the post‑2008 period and the introduction of quantitative easing (QE). QE unquestionably saved the global financial system, but the problem is that it never stopped once the crisis ended. Each time markets wobbled, central banks stepped back in. The strategy “worked,” as long as bond markets co-operated and kept yields low.”
I’d go back further, and take the example of Japan that started QE in 1990s and ended up with deflation, and stagnation. Yet, the magical Banksters that run our Central Banks didn’t take Japan as the example of what not to do, but “It’s different when Carney does it”
Japan is a example of what a monetary “end game” can look like. When they started QE, they were still a dynamic, young, enormously productive economy that was able to manage an exponentially growing debt burden for decades. Today, however, Japan’s aging population cannot hope to be as productive as a young one, and therefore will find that the debt burden now becomes literally unmanageable.
Pay as you go schemes can come crashing down when the payers cannot support the receivers.
I would be inclined to include debt reduction as a top priority when looking at investment mix.
This memo never made it to the desk of Jerry Powell. Good thing he’ll soon be gone … not a moment “too late”. Just in time to unleash a supercharged American economy that’s been doing slow laps behind Powell’s sputtering pace car. Time to start the race!
Debt has grown slowly at first and then spectacularly since Nixon closed the Gold window in 1971. That was the last thing holding back reckless borrowing and spending. Now the west is a collection of bankrupt welfare states keeping the ponzi going as long as they can buy votes. PMs have gone parabolic and QE will seal the deal with a market crash, bear market, and stagflation.
“When a central bank prints money to finance deficits, the purchasing power of that currency erodes rapidly.”
Why? It’s because the financial big-wigs will use any opportunity to cause inflation— robbing ordinary folk of their savings. Prices don’t have to go up when there is more consumer money available .. the marketplace (REAL marketplace, not the financial houses) will absorb as much demand as there is money to fuel it. The contrast is between greedy capitalists who want to grab up any increase in cash and free enterprisers who see opportunities to EARN a share of it. It should be written in the constitution that after an increase in the money supply all prices are frozen for at least a year— staving off profiteering and providing time for commensurate expansion of the economy.
Agree with Pelletier.
Do not own ANY government bonds. Government’s are irresponsible borrowers. Period.
If you must, choose large corporate bonds instead. Better rates and terms, by far.
Let rats buy meaningless paper.
Oh, and hope y’all bought silver. There’s still time. Up 40% in a month. 200% in a year.
But sure, choose those 3% bonds instead.
Wait. Don’t JUNK Bonds pay much higher interest rates? Doesn’t our government sell them out of basement boiler rooms?
No Junk investor here, my man.
We put some of our funds in “strips and coupons” from Big Banks and Big Canajun Corps a couple years ago.
They’ve been paying out at just under 10%. Risky? Well, if the Banks, Rogers, BCE and WTC go down, EVERYTHING is busted.
It’s riskier putting your funds in a GIC at 2.5%
Quantitative easing is a new term for printing money based on nothing.
Printing money based on nothing = theft.
Period.
People have already given goods and services in exchange for a token representing that value. To then later change that value is theft.
Period.
No matter how deep one wants to bury that in financialese changes nothing. Central banks should be illegal, and their very existence allows for Keynesianism/socialism and creates the debt that becomes a too-big-to-fail problem.