In recent years we’ve seen global debts soar to heights never before seen in human history. Before the financial crisis of 2007 and 2008, public and private debts were already out of control, but when the governments of the world tried to keep the global economy together with all their might, they did so by going into debt, to the tune of over $200 trillion. And that’s just what the numbers looked like the last time anyone checked back in 2014. Who knows how much debt the world is in now.
And that $200 trillion, by the way, amounts to around 300% of the world’s GDP, and it’s still growing. Obviously this isn’t sustainable. If you had a credit card debt worth three times as much as your yearly salary, and it continued to grow year after year, you’d be bankrupt in no time.
At some point, these debts are going implode the global economy. It’s a certainty. The only question that remains is when will this happen?
One of the signs that suggests this event is fast approaching, can be found in the way that governments are issuing their bonds, which are essentially debt contracts that can be bought by investors. Traditionally, a government or institution will sell bonds to an investor, with the promise that they will pay them a certain interest rate. After 10 or 20 years, the investor will get all of their money back in addition to the interest rate they’ve been accumulating. It’s basically a loan given to governments by investors.
But now governments are starting to issue bonds with negative interest rates. Imagine if a bank gave you a loan, but instead of having to pay an interest rate, the bank paid you. So after ten years a $100,000 loan may only cost you $99,000. Except in this case, you the bond buyer, are the bank.
Make sense? Of course not. You’d have to be crazy to make that deal. But that hasn’t stopped these negative interest yield bonds from becoming obscenely popular over the past couple of years.
Now it’s $13 trillion.That’s the total amount of government bonds in the world that have negative yields, according to calculations published last week by Bank of America Merrill Lynch.
Given that there were almost zero negative-yielding bonds just two years ago, the rise to $13 trillion is incredible.
In February 2015, the total amount of negative-yielding debt in the world was ‘only’ $3.6 trillion.
A year later in February 2016 it had nearly doubled to $7 trillion.
Now, just five months later, it has nearly doubled again to $13 trillion, up from $11.7 trillion just over two weeks ago.
Think about that: the total sum of negative-yielding debt in the world has increased in the last sixteen days alone by an amount that’s larger than the entire GDP of Russia.
Think about the implications of this. There are investors out there who are actually buying bonds that are guaranteed to lose money if they sit on them. They are basically donating money to governments, so they can continue to operate. Who in the hell would ever make that deal?
The truth is that for some investors, buying negative yield bonds makes sense, albeit for horrible reasons that do not bode well for the future of the global economy.
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These investors are basically betting that the economy is going to tank so badly that no investment will be safe, and that the governments who issue these bonds will still be standing when the dust settles to fulfill their bond contracts. They think that the safest investment is not one that will earn them money, but one that will lose them the least amount of money, all things considered. Most Western governments have a stellar track record of paying back their bonds (though whether they’ll be able to in the near future is yet to be seen), so these investors figure that losing a little money on bonds is a better bet than any other asset, including stocks, real estate, or any entrepreneurial pursuit.
Can you imagine a world where literally everything is going to lose value? These investors view that as a possibility. They may even think that they can make money on these bonds when the economy tanks, because in a crisis, other investors may be willing to pay top dollar for the relative safety of these bonds.
And now we’re in bubble territory, because there’s no way that investors are going to buy these bonds indefinitely. Let’s be real now, they’re not safe at all. They only appear that way to people who think that the current state of affairs will go on forever, and that there’s no way their government could go bankrupt.
However, the fact that these negative bonds exist, means that governments are growing desperate to keep the lid on the debts they already have. The only reason why a government would issue negative yield bonds, is if they didn’t have enough money to pay the interest rates on the bonds they had issued before. They’re just hoping and praying that people will be dumb enough to buy them.
But once the trust is gone, and these investors realize that their governments are hopelessly broke, nobody will buy these bonds. And once that happens, these governments will be forced to admit that they can no longer manage their debt obligations. Not now, not tomorrow, and not in a million freaking years. And just like that, trillions of imaginary dollars will disappear from electronic spreadsheets all over the world.
Much like how the financial crash of 2008 started with the collapse of real estate in the United States, but eventually cascaded into a global disaster, the implosion of the global debt bomb will start small before burning everything to the ground. Major companies, municipalities, pensions, schools, and entire nations will go bankrupt, and John Q. Public will lose everything as well. They’ll lose everything, right when the institutions that provide essential services start to cut everything back. You can bet that the welfare state will be hollowed out as well, and suddenly millions of people will be hurled into a Darwinian state of affairs.
It’s going to be the most horrific disaster that any of us in the developed world have ever seen. It’s going to make 2008 look like a golden age. And not only is this event inevitable, it’s closer than you think.
Joshua Krause is a reporter, writer and researcher at The Daily Sheeple. He was born and raised in the Bay Area and is a freelance writer and author. You can follow Joshua’s reports at Facebook or on his personal Twitter. Joshua’s website is Strange Danger.