The economic condition of Europe has been so dire that European Central Bank (ECB) had already reversed its monetary policy as admitted by ECB last week. Just recently we also reported how the chief economist of ECB shared that they create money out of thin air.
After the Great Financial Crisis of 2008, central banks had printed trillions of dollars to push the interest rates to their lowest levels that means people can buy things that otherwise would have been out their reach.
Now, ten years into this monetary experiment, the US Gross Domestic Product (GDP) increased $7 trillion since then. However, it was at the cost of US national debt rising by $12 trillion to $22 trillion.
As put by Simon Black from SovereignMan,
“The US economy is so dependent on cheap money, it can’t even handle 2% interest rates (the Fed hiked rates from 2.25% to 2.5% last December and stocks fell 20%).”
But the situation of Europe is even worse as despite having negative interest rates, its economy is still weak that grew a mere 0.2 percent in Q4.
ECB’s Dovish Move Fail to Move the Market
Last week, the central bank announced that it would keep the interest rates negative while starting its third round of cheap loan to banks. Meanwhile, the bank has cut its growth forecast to 1.1 percent from 1.7 percent.
The world’s biggest central bank whose balance sheet is 40.5 percent of Europe’s GDP has unveiled massive monetary easing and still, the stocks had tumbled, last week. The margin utility of the money being printed by central banks all around the world is also plummeting where each dollar that is printed is producing less and less economic activity.
Moreover, currently, there are $9.7 trillion of negative yielding bonds in the world that is up 21 percent from last year’s October through January figure. With the interest rates being the price of money and this being in negative, it puts a big question mark on the world and its money.
What’s the Solution?
One of the best things to do in the current environment is to own real assets. These assets could be precious assets like gold which traditionally is considered one of the best deals along with silver, uranium, and copper etc.
The plan B also involves Bitcoin which given the fact that it has a limited supply and unlike fiat, BTC can’t be created out of thin air that further adds value to it. Not to forget that it's about freedom of choice that is no restriction by any border.
Moving forward, it can be expected we would see more negative yielding debt and fiat will lose its value as have already happened with various currencies and currently occurring as well. So, you better be prepared for it.
What is your take on a negative interest rate not able to keep up the economy? What is your plan B? Let us know in the comment section below!