Mysterious: Latest memo from Howard Marks on negative interest rates
oaktreecapital.com
oaktreecapital.com
To my mind the current race to negative rates appears to be an outcome of the ubiquity of a previous solution. Many countries have eschewed Keynesian stimulus in favour of monetary policy (due to debt cycles, etc and the difficulty in weaning the citizenry off stimulus when it becomes unnecessary). This preference became dogma as monetary policy successes grew. This dogma has led to ubiquity and, thus, the weaknesses of this approach are now becoming obvious.
I think negative interest rates will begin a march back toward fiscal stimulus. One day we might reach a balance but I think in 25 years time many government treasuries will be overrun with fiscal stimulus in the form of spending and the monetarists will be bemoaning the enormous debt that will almost inevitably follow.
It seems like the rat race into buying more and more assets at extreme premiums will continue as long as they believe that these assets will either grow or stay constant in valuation.
It's quite an interesting paradgim shift that I don't think many people are talking about.
Will we close the long term debt cycle via a depression ? Maybe. A sign of an incoming depression is the populist movement all across the globe, I don't see why we won't have a major revolution in the next few decades.
Or what happens if we head into world war 3 ?
I guess the best thing to do now is figure out sustainable cash flows like Howard mentions.