The Future of Negative Interest Rates and Helicopter Money

BY: MATT BYRON

Recently, the international banking world has been turned upside down with the concept of negative interest rates. The fact that this terms starts with the word “negative” makes it sound ominous. The fact that this is unprecedented and not understood also scares lot of people.

I’m intrigued by the concept, so for the benefit of my own personal investments I wanted to collect my observations and formulate my own macroeconomic theory.

First, my premises:

  1. Technological innovation is leading the world to abundance. Machines make it possible for us to grow crops and manufacture vast quantities of goods, with very little human labor. The end result is a leisure society which squanders it’s time on Facebook and watching television. Going forward, goods will continue to become better, cheaper, and faster than ever before. We will live in a world of even greater abundance.

  2. The world needs  a currency system because it facilitates specialization. For example, if a farmer wants to barter for a new computer the transaction would be very cumbersome. Afterall, how would a bushel of corn help the computer company which needs silicone?  Bartering is crude and archaic. Therefore, it behoves humanity to have a monetary system.

  3. Banks need governments to enforce laws and preserve order in society. Therefore, banks will always look after the interests of governments.

  4. Central banks create money from nothing. Some people bicker about GPD, national deficits, or nations going bankrupt. But these issues are moot.  Money is contrived and unlimited. Don’t be fooled by the ivy league MBA’s, expensive suites, esoteric vocabulary, and pretty charts. Money is just a giant game run by central banks.

  5. Society accepts money as being something of value, without ever questions it’s creation. Money will continue to have value, as long as the majority of the populations believes in it.

  6. The war on cash has commenced. Banks around the world are reducing the size of their largest printed bills. Governments around the world are equating cash payments with terrorism. It’s likely that in 5 or 10 years, physical cash will be completely eliminated from society.

  7. Governments around the world are notorious for squandering resources. Because they waste so much capital, they drive demand for goods and services that wouldn’t be need otherwise.

  8. Central banks are currently buying and will continue buying assets around the world to prop up investment prices. This is currently occurring in Japan and Europe.

So where does that bring us? Our society has an excess manufacturing capacity and an abundance of resources. So it behoves people to delay their purchases, which points to deflation. But if everyone in the world delays their purchasing, then the entire world financial economy would grind to a halt – which is bad. The central banks and governments of the world intend to remain relevant – that’s their goal.

Therefore, I foresee a confluence of key events. First, physical cash will become illegal. Holding physical cash is the easiest way to avoid the losses from negative interest rates on bank deposits. All money will be digital and you will be taxed ( by the bank or government) on your savings and income each year. We will see negative interest rates to levels we cannot fathom. Banks might lend at -3%, -5%, or even -10%. Those same banks might charge you -5%, -7%, -12% or more on your deposits. When all the money in the world is digital, you’ll have no choice but to pay for depositing you money.

Concurrently asset prices will rise, as central banks continue buying all the world’s assets. Bank of Japan already owns 52% of the entire Japanese ETF market. Central banks will drive up equities and real estate prices will increase. Central banks will corner every market.

Imagine a world, where your mortgage interest rate is -5%! It sounds absurd right? But just as absurd is the fact that money is contrived out of thin air by the banks. Therefore it’s possible.

Even though prices will increase, the governments will continue taxing real estate, equities and other assets. This taxation will keep governments in power and help them appear to still be relevant.  

As we see a surplus in the unemployed labor force, social welfare programs will be expanded. More money will be available for student loans, having a child, buying a house, or government health care.  Every person on the face of the earth might receive a basic life income of $500 or $1,000 per week. Keep in mind this is a digital currency, so you won’t be able to save it long (banks and the government will tax it every week). By dumping helicopter money on the public, the governments of the world will be spurring unneeded consumption (through boondoggles likes: wars, infrastructure projects, healthcare and college education financing). Additional boondoggles will include bailing out failed banks, corporations, and state governments.

Ultimately, we’re entering the ultimate era of leisure and free money. During this time we’ll see a “recession” every 7-10 years, created by the central bank, just to make it appear the marketplace is “free” and that money is “real”.

That’s just my theory…

I am NOT an investment professional. This blog is NOT intended to offer financial advice. 

10 Rules for Eating Pizza

My brother is passionate about eating great pizza. He’s established these rules to maximize the experience.

  1. Don’t burn you tongue!
  2. Order full pies.
  3. Always go for quality pizza. Life is too short.
  4. Order the largest size available.
  5. Generally choose eating in over boxed pizza to go.
  6. There is no one best style. Deep dish, thin crust, artisan, neighborhood pizzeria, there is a place for all of it.
  7. Do not over-eat.
  8. Know your local pizziaolo/a and respect them as you would any fine craftsman.
  9. There are no rules regarding the use or nonuse of utensils.
  10. The best pizza is that shared with good friends.;

Apply these rules and you’ll learn to appreciate great pizza.

How Small Problems Distract Us

Small Problems in Life

Small problems in life, are like a pebble in your sandal.

Have you ever had a small pebble in your sandal? It’s distracting and painful. If the problem is not resolved immediately, the pain will continue indefinitely. It will continue to distract you from your daily activities.Yet, it takes just a second to remove a pebble from your sandal, right? When a pebble is jabbing into your heal, it’s obvious that you should quickly remove it. But what about, when little chores in life distract you from your goals? Is that obvious too?  Errands like replacing a dead car headlight, greasing a squeaky door, or cleaning out the refrigerator – are all easy to address.

Anytime you find yourself faced with a small distraction -  one that takes just two minutes to fix – get it done right then and there. These small distraction charge interest. Each day they are not addressed, they will distract you from your goals. Like grime collecting on a windshield, they will clog your vision from what is important in life. Once you remove these distractions from your life, it will become easier to focus on your goals.

Reflect for a moment on a small task in your life – One that has bothered you repeatedly.  Address it right now.

How To Quickly Get In Great Shape

With summer finally here, many people are looking to get in shape before heading to the beaches. A healthy diet and fitness routine are obviously a good start to attaining this goal, but what else can you do?

I have found one of the best strategies is to track your performance with a Success Tracker worksheet. Start by defining you fitness abilities on day one. This can be done easily by using a Microsoft Excel spreadsheet, Google Docs spreadsheet, or graph paper. For example, you can write down the number of push-ups, sit-ups, and pull-ups can you do. Or how long you can jump rope and how quickly you can run a mile.  Record your ability and track it after each workout for the next 100 days. When you exercise, aim for just a small improvement of just 1 or 2 percent per workout.

Tracking your fitness level with a Success Tracker worksheet, may help you improve your abilities. I found that by using this technique I doubled the amount of push-ups, sit-ups, and pull-ups I could do in just 100 days.

Why does this system work so well?I think it does two key things. First, it helps you focus on small improvement that’s within reach. Doubling your ability overnight is likely a push and may even harm the body. But focusing on small improvement, is viable and safer. Second, the Success Tracker holds you accountable. It’ll help you maintain the discipline to workout several times per week. Skipping your workout for a couple of days will not be an options. The Success Tracker operates like a good friend, reminding you to stay focused on your goal.

As a general goal setting philosophy, that which gets measured can be improved. If you don’t track progress towards a goal, it’s hard to tell if it’s being made. A Success Tracker worksheet will help you track that progress.