Well, here’s an interesting tidbit from the Treasury Borrowing Advisory Committee (TBAC) compliments of Zerohedge. Their latest letter to Timothy Geithner contained the following paragraph:
“There was a lengthy discussion regarding the bid-to-cover ratios at recent Treasury bill auctions. It was broadly agreed that flooring interest rates at zero, or capping issuance proceeds at par, was prohibiting proper market function. The Committee unanimously recommended that the Treasury Department allow for negative yield auction results as soon as logistically practical.”
It’s probably the perfect summary of our insane monetary system in which common sense and everything else has been turned on its head. Here we have a group of Wall Street bankers “advising” the Secretary of the Treasury to implement a system for allowing negative interest rates as soon as possible. Yes, real life negative interest rates all in the name of allowing proper market function.
Market function is the one thing that we have been sorely lacking for the last ten years with two once-in-a-lifetime bubbles brought about by non-market interest rates set by our central planners at the Federal Reserve. And now our global “markets” are little more than casinos betting on what the central banks will decide to do next.
Yes, proper market function is what we need most to clean out a system that been gummed up with unsustainable levels of debt and an insolvent banking system. But, negative interest rates aren’t going to do that. What they will do is light a fire under the price of gold.
Real negative interest rates, in which the loss of purchasing power due to price inflation is greater than the interest earned, have been a powerful driver of the gold price for many years now. But, what happens when actual interest rates go negative?
Well, what happens is that large portions of the investment community, who have been trained to believe in the infinite safety of the dollar, will start to shake off their stupor and realize that, at some point in the future, gold will be the only store of value left standing. At that point the game will be on.