Teeka Tiwari’s NIRP Escape Hatch

21.07.2016 • Central Banks

From the Inner Circle (United States) –

Regular Inner Circle readers know that two of the biggest “wealth stealers” right now are negative-yielding bonds and negative interest rates.

As we covered last week, more than $12 trillion of government bonds now trade on negative yields. That’s just under one-third of the entire market.

And over 30 countries – with a combined population of over 500 million people – now have negative interest rates. For these people, earning interest anywhere is a thing of the past.

In the U.S., bond yields and interest rates are still positive… barely. But that could change anytime. In May, Fed chief Janet Yellen told reporters she would “not completely rule out” the use of negative rates “in some future very adverse scenario.”

We don’t know what Yellen had in mind. But a stock market crash or a recession would likely be enough to push the Fed into a negative-interest-rate policy, or “NIRP.”

That means you pay to save – whether it’s in the bond market or in your bank. And you don’t need me to tell you that this is a HUGE problem if you are trying to build a nest egg… or make the nest egg you already have last.

Building wealth in a NIRP world is like trying to fill a bucket that has holes punched in the bottom. No matter how much you save, with each year that passes, you will have less money than you started with.

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