Negative yields on Irish Government bonds

Negative yields on Irish Government bonds - → … -1.2477950

How long will this craic keep going?

This is mostly technical; banks are required to keep a stock of liquid assets which include deposits at Central Banks and high grade (pref short dated) govt bonds. In order to discourage the hoarding of liquidity and incentivise lending, central banks are effectively charging for those deposits meaning negative interest rates. Banks will therefore but short dated govt paper in greater volumes. The quantum is such as to drive the interest rate negative, ie I will buy a 1 year bond at a premium to its redemption price recognising that cost as less than the CB negative interest rate.

Right, but in terms of the ‘success’ of QE, it is another deflationary outcome of QE (or more correctly of ZIRP, since Central Banks seem to be under the delusion that they can only do QE at ZIRP). The negative short-end ripples through the maturities and becomes self-fulfilling. By depressing the yield of long-term bonds, future inflation expectations are quashed = deflation persists…

If the ECB gave every European €5,000 tomorrow, would we have inflation ?

Possibly, but how many would (i) save it, (ii) use it to reduce debt/credit card bills, (iii) use it to purchase cheap imports (TVs).

It would have to be designed in a manner so it was spent in the internal Eurozone economy - could only be spent on services or on domestically produced goods.

Tie it to energy saving upgrades - should do the trick!

I don’t think so. I don’t believe this is an ‘idle money’ deflation - the ECB is fighting the war of the 1930s when velocity disappeared. What we have, I reckon, is wage stagnation - stagdeflation. That’s going to take a different weapon to fight it; not monetarist policy. In effect, it started in the mid-nineties with the rise of cheap imports and global trade liberalisation. Easy credit papered over the cracks with the FIRE ‘economy’ new paradigm. Sadly, that was so much illusion (except for the gilded few) and now that cheap money/cheap credit has nowhere to go, the paradigm is screwed. What will replace it? I don’t know. Manufacturing is gone the way of bucolic lifestyles - it was a past that was never as nice at the time as it looks in the mirrors. The illusory economies of countries like Ireland are all there is and by some miracle, it turns out the Irish are good at it, at least for the moment.

CBs are creating systemic risks.

Think sub prime mortgages - a search for yield.

The creation of the next minsky moment.

Which will then need to be “fought” with further easing.

If governments gave every citizen a 5k tax break on their income, and CBs bought the deficit in the form of bonds (to offset lost revenue), yes this would be very inflationary.

this was proposed by Ben Bernanke, dubbed helicopter money as the debt would go on the CBs balance sheet,- it’s monetising the debt.

Each of the policy options I have discussed so far involves the Fed’s acting on its own. In practice, the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman’s famous “helicopter drop” of money.

It’s too late now; the high yield corporate bond market and associated funds are already having refinancing problems and the accumulating refi exposure is here. The question is which institutions and/or real funds are holding the top most piece of paper once you cut through all the layers.

We shouldn’t, it’s healthy, it’s capitalism.

But government/public sector/welfare spending is so high it couldn’t afford it.

Eg - businesses going bust would starve the government income like we saw in 08 and when the troika arrived.
So, this monetary roach hotel we find ourselves in is due to large governments & CBs continuously accommodating it.

They need to raise rates & governments (including their policies) crushed down to size, the ecb isn’t pushing the piigs hard enough Imo.

It’s bad because beneath it all it’s wage deflation. This time it is not a monetary effect. The helicopter drop would have no medium term effect. Wage deflation is bad because it results in reduced purchasing power and lower standard of living. It is, though, a western phenomenon and will eventually be balanced when lower wage environments raise their wages enough. Meanwhile, we’ll be power with a lower standard of living.

Is there any evidence of Japan having wage deflation ?

Deflation would be great for the economy (long term), the initial job losses are obviously not welcomed by the people on the receiving end. The only people that don’t want deflation are governments (and in turn CBs). Look at the cost of TVs/computers etc, deflation is inevitable, the economy needs to be structured in order to embrace it.

Deflation/recessions/capitalism, it’s all part of a healthy economy/business cycle. It’s CB’s continuously preventing it that cause the problem as they are simply pushing day of reckoning down the road.

Yoganmahew I’ve edited you post -

  1. I couldn’t disagree more with. I don’t think wage deflation is the problem -
  2. If a manufacture/service provider can provide the exact same product at a lower cost by means of lower wage - it **increases **the purchasing power of the consumer, increasing their standard of living. The lower wage employee is offset by the saving of the consumer.
  3. I’m not sure what part you are referring to as being a phenomenon, waiting for the wages of the rest of the world to surpass Irelands before we become competitive is risky - we’re stacking up debt while waiting.
    The (imo) best thing to do would be to scrap minimum wage - maybe only in certain counties that suffer high youth unemployment.
    I actually think the youth might go for it if it was put to them on a vote - eg scrap minimum wage (and slash dole) to be given an opportunity to work and learn skills, with the potential to eventually become a manager/engineer/accountant/director in the said “low wage” (manufacturing) companies.
  4. Amen to that.

Unfortunately, these changes in 3) take time and a government with a backbone.

Number 1 reason this wouldn’t work in Ireland:

It’s a tax break. As such, those without a meaningful income tax liability wouldn’t benefit. Which is bad “politics” given the highly progressive structure of the Irish income tax system.

Give it to them in the form of dole payments then.
Ignoring the politics of it, you get the idea. You should understand the possible risks & effects, especially if CBs revert back too their old habits.

deflation has terrible long term consequences;
for example, the real cost of credit increases as incomes drop but debt is (typically) non index linked so doesn’t drop; that will negatively impact GDP and ultimately also causes capital & wealth to be (even) further concentrated within the confines of the 1% … which really must be avoided;
In fact “sustained deflation” is probably a contradiction in terms because it would cause such social strife that, in a sense, it could not be “sustained”…

Larger government deficits are clearly required across much of the developed world economies. And soon.

Well the Saudis are leading by example with a $98 billion deficit. Hard times beckon for the sofa men in the gulf countries. Deficit spending has worked out well for Puerto Rico. Either way there is no such thing as a free lunch, once the illusion of more government deficit spending fails the reality is higher taxation, war and eventually debt default and loss of power for the establishment and reform.

You may have a full scale (peasant’s) revolt if you try that, quite likely coupled with a violent backlash against migrants, foreigners, non-nationals or whatever they’re called these days.

You could end up with having to militarise the police force along the US lines to keep order.

obviously I mean from countries with free floating sovereign currency … definitely not Saudi (pegged) or Puerto Rico (essentially municipal US).

if Eurozone increased deficit limits from 3% to 7% and the difference was to be invested in infrastructure (particularly education for example) and the gap was financed directly by the ECB then unemployment would immediately begin to fall and agg. demand would increase.

if widespread negative bond yields doesn’t show you there’s an excess of demand (and too little supply) of sovereign debt then nothing will…

important to remember that Monetarism was a nonsense voodoo which failed utterly; it morphed into “Inflation Targeting” which has similarly failed; because the dominant lever of the economy is fiscal.

Just realised that the rest of your comment was about Japan being bankrupt; you should try to understand why you (and others) have been so completely wrong on that prediction and why Japanese 10yr debt yields 30bps… it’s surely better to understand than to be loyal to a misplaced ideology.