It’s a Bubble?

From the Wall Street Journal:

Investors agreed to pay the German government for the privilege of lending it money.

In an auction Monday, Germany sold €3.9 billion ($4.96 billion) of six-month bills that had an average yield of negative 0.0122%, the first time on record that yields at a German debt auction moved into negative territory.

This means that unlike most other short-term sovereign debt, in which investors expect to be repaid more than they lend, investors agreed to be paid slightly less. And they are willing to do that because they are so worried about the potential for big losses elsewhere.

The so-called safety of government paper is being eroded by the reality of negative real rates.

The same conundrum applies to America.

In theory, this is designed to try and force fearful investors into more productive assets.

But in reality the irresistible force of the printing press slams up against the immovable object of depressed demand. They have shoved and shoved and shoved this huge boulder, but the market hasn’t budged…

Levitated-Mass-Rock-boulder

6 thoughts on “It’s a Bubble?

  1. Well when the Keynesian Economist lose their jobs, they can always apply for the following Economist Job in Australia.

    http://www.apsjobs.gov.au/SearchedNoticesView.aspx?Notices=10557824%3a1&mn=SESSearch

    Good to know the Australian Government is throwing so much money at promoting Tourism.

    Have they not heard about opeing up the job market to Backpackers, who travel everywhere then tell their friends and family about the best and worst places. Crimby hotels go out of business quick, and small personalised homestays are promoted.

    I think the Chinese Japanese learned the hard way. Paying for a holiday on the Gold Coast, only to find it is the worst beach for drowning! And the Miami style apartments riddled with drunken mining workers and prostitutes. I bet this holday destination was on the radar of the previous economist for this position!

    • Now I know why old people stored money under mattresses (My deceased Great Grandfather stored wads behind the refrigerator)

      The return is not worth it, and the banks collapse!

      Interesting times. What goes around comes around.

      • Yeah, in Japan right after their Great Bubble burst they also allowed individuals to buy small-denomination JGBs as saving deposits bearing negative interest. (-0.05% or -0.005% per annum, I think it was.) At that time Japanese banks were going all broke with poisonous assets too. I was just surprised that the institutional buyers (a. k. a. The Banksters) also accepted negative interest for the privilege of lending sovereign nations money.

  2. The UK has just sold 25 years bonds, at -0.13 and a bit.
    But they are RPI linked.

    Yunzhi
    If the German bunds sold were inflation linked, then no, even if they werent, securely storing money under the bed isnt cheap.

  3. Pingback: Deleveraging? « azizonomics

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s