Gualfin (“End of the Road”), Argentina
Dear Diary,
Not much to report from the financial markets.
And things seem to have settled down in our hometown of Baltimore, after they called out the National Guard.
So, we’ll return to our exploration of the Fed’s fabulous fantasy land…
Money for Nothing
Yesterday, we looked at the coming liquidity drain.
It is roughly what has been happening in California already. When more liquidity is being used than is available, things dry up.
But wait…
Do the feds have a still-untapped aquifer of cash and credit they can pump dry?
Short-term interest rates are already as low as they’ve been. But could they go lower?
Yes on both counts…
Ask your spouse: “What will you give me if I kiss you?” If the answer is nothing, you have established the value of your kiss: zero.
But suppose the answer comes: “If you take out the trash, maybe I’ll let you kiss me.”
Now, the value of your kiss is even lower – below zero. You have to add something to it to make it acceptable.
Likewise, it appears that lenders – mainly in Europe and Japan – must add something to their money each year in order to persuade the government to take it.
We have already been humbled and flummoxed by zero-percent interest rates. Even when we are in our cups… or deprived of oxygen… they make no sense.
How could something simultaneously have no value – or less than no value – and still be worth anything?
Money has got to be worth something, right?
Then how could it be lent out for nothing… or less than nothing?
Bonds Are a Liability
Let’s take one example…
Earlier this month, the Swiss government sold 378 million Swiss francs ($354 million) of bonds. Those that mature in 2025 carried a yield of MINUS 0.055% before accounting for inflation.
Does this mean what we think it means? That the value of the money lent is less than zero?
