Dmitry Orlov: Negative interest rates and the impending global financial collapse
What the flashing neon words on the wall seem to be saying is: negative interest rates are on the way throughout the “developed world.” In due course, they will demolish any remaining value of the US dollar, and blow up the bond bubble. In turn, this financial collapse will trigger the next stage: commercial collapse.
Well, that didn’t take long! Negative Interest Rate Policy appears to be a gift that keeps on giving.
Just a little while ago I wrote that, in essence, if the Federal Reserve wants to keep the financial party going a little bit longer, it will have to continue lowering interest rates to below zero, as this is the only way to keep broke debtors alive and prevent the gigantic debt bubble from imploding. And now we find out that the Federal Reserve has resolved any legal impediments (such as the Federal Reserve Act) that have kept it from doing just that.
To recap, negative interest rates are a way to pay debtors to hold onto their debt instead of defaulting on it or repudiating it, thus preventing the debt pyramid from pancaking and taking the entire financial system with it. But this effect is temporary, for at least two reasons.
First, negative interest rates are essentially a tax on savings, causing people to think of other ways to store their wealth: land, precious metals, boxes of brass knobs, what have you. In due course, money stops being regarded as wherewithal and starts being regarded as an unreliable way to conduct business.
Second, with a gigantic bubble in bonds now decades old and bond yields now going negative, it is a matter of time before the realization hits that negative-yield bonds are not any sort of safe haven. Their value is now strictly a matter of their market valuation, which can plummet the moment people decide to dump them, with no floor anywhere. After all, there are plenty of other ways to lose money, and negative-yield bonds are nothing special.
And so, what the flashing neon words on the wall seem to be saying is this: negative interest rates are on the way throughout the “developed world.” In due course, they will demolish any remaining value of the US dollar (along with other NIRP currencies, such as the Euro and the Yen, to mention a few). Also in due course, they will blow up the bond bubble, and impair the debt financing function of Western and Japanese banks and corporations. And once this happens, obtaining new credit will become problematic.
In turn, this financial collapse will cause problems with letters of credit and bills of lading, meaning that cargo will not be loaded on ships, and the ships won’t sail, leading to shortages of imports, disrupted global supply chains, triggering the next stage: commercial collapse.
That, in turn, will cause the tax base to shrivel and tax receipts to drop precipitously, impairing the ability of governments to continue to function. (Countries that insist on stationing their troops around the world for no good reason will be affected especially badly.) And this will bring on political collapse: governments will have a hard time pretending that they still exist, never mind being able to demonstrate that they still matter.
At which point you will suddenly find yourself asking this: How far along are social collapse and cultural collapse where I am? Do I know who my people are, and will they stand up for me, and I for them, or is it every man, woman and omni/multi/homo/trans/nonsexual part-unicorn for him/her/itself? This is not some theoretical question, but a perfectly practical one.
For example, last New Year’s eve in Cologne, Germany, a mob of around a thousand male migrants attacked and molested a large number of women. There were some German men on hand; did they defend their women? No, they didn’t. Or take the recent incident in Orlando. Conspiracy theories aside, there were over 100 people there against one gunman. Did any of them rush the gunman? The first 10 might have gotten shot; but the next 10 could have piled on, dropped him to the floor and stomped on his neck, ending the incident. But that didn’t happen, did it? Where was their killer instinct?
By way of contrast, consider the incident that took place in Murmansk, Russia, where some migrants that had been expelled from Norway for bad behavior started behaving impudently toward some Russian women at a night club. The local lads didn’t like that at all. According to some reports, the police showed up when the situation was already well in hand, and did their best to show that they are no slouches either. Result: 18 rapey migrants ended up in the hospital, 33 in detention, all begging to be sent home. If you are thinking that these people aren’t quite civilized, then perhaps you are right, but we need to further process this thought.
You see, when your civilization is collapsing, civilized people become a liability. It may not even be just a question of culture or society; it may be a question of breeding. Just as you can breed hunting dogs to specifically disable certain instinctive behaviors—pointers don’t attack the prey but stupidly stand there pointing; retrievers stupidly carry the prey back instead of eating it on the spot—you can also breed a race of men that don’t defend their women but stand there stupidly waiting for the police to show up and maybe do their job.
The selective breeding works like this: keep arresting all the men who exhibit normal violent responses to violence and sending them to jail, where the only relationships they can have are homosexual ones and don’t produce any offspring. Then the only men who are left on the outside and able to breed are the docile, tame ones, and over just a few generations they produce a breed of docile, tame humans who stand around watching strangers manhandle and molest their women, or wait for a lone gunman to get around to shooting them, hiding in the bathroom and furiously diddling their phones.
There is no getting away from nature; chase it out the door, and it will jump back in through the window. Nobody has the authority to repeal natural selection; and when collapse occurs, those who were previously considered fit turn out to be unfit, and vice versa. Yes, you can pretend that everything will be all right because you have a pot of gold, a patch of farmland and some seeds, a well-stocked doomstead and a collection of pea shooters and pointed sticks with which you plan to single-handedly hold back large gangs of heavily armed, starving marauders. But let’s not pretend. If you find yourself swimming at the shallow end of the gene pool, now would be a good time to head for deeper waters.
This article probably didn’t go where you thought it would. But collapse isn’t some mildly amusing board game that you and I get to play on Tuesdays. I write not to entertain you but to give you an edge. If you read this and yet do nothing, then you will have wasted your time.
MORE FROM DMITRY ORLOV
The Money Cult (On negative interest rates)
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Interest rates and rates of growth are related: a positive interest rate is little more than a bet that the future is going to be bigger and more prosperous, enabling people to pay off the debts with interest. This is an obvious point: if your income increases, it becomes easier to repay your debts; if it stagnates, it becomes harder; if it shrinks, it eventually becomes impossible. Yes, you can nitpick and split hairs, and claim that there was still some growth, but in the developed economies most of this growth has been in financial shenanigans, fueled by an explosion in debt. Once you are faced with a continuously shrinking economy, just holding interest rates at zero is not sufficient to forestall financial collapse. The interest rates must go negative.
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Elizabeth Kübler-Ross defined the five stages of coming to terms with grief and tragedy as denial, anger, bargaining, depression, and acceptance, and applied it quite successfully to various forms of catastrophic personal loss, such as death of a loved one, sudden end to one’s career, and so forth. Several thinkers, notably James Howard Kunstler and, more recently John Michael Greer, have pointed out that the Kübler-Ross model is also quite terrifyingly accurate in reflecting the process by which society as a whole (or at least the informed and thinking parts of it) is reconciling itself to the inevitability of a discontinuous future, with our institutions and life support systems undermined by a combination of resource depletion, catastrophic climate change, and political impotence. But so far, little has been said specifically about the finer structure of these discontinuities, which is what this essay will do.
The US Is Sleepwalking Towards A Nuclear Confrontation (Audio)
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Following his cautionary analysis on the increasing tension between the US/NATO and Russia, Chris Martenson interviews Dmitry Orlov this week about the potential likelihood for actual direct conflict to break out between the world powers. Orlov was born and raised in Leningrad in the former Soviet Union and immigrated to the United States in the mid 70s, He has spent the past several decades traveling back and forth between the two countries, writing about the collapse of the Soviet Union and the many similarities he sees between that and the secular decline happening in the West. Orlov recently co-authored a stark warning with a number of other experts on Russia, concerned that the US is recklessly provoking a military confrontation it cannot win. (Also read: A Russian warning)