After about 12 years of crazy monetary policy, things are becoming even more strange. Banks are paying people to borrow money, and The Washington Post describes why this is alarming.
[Subzero] debt, issued as government or corporate bonds, has doubled since December and now totals $15 trillion.
The sudden increase suggests that a fast-rising share of investors are so nervous about the future they’re willing to actually lose a little money by lending it to a borrower that is almost certain to pay it back, rather than risk betting on something that could go bust. In a healthy economy, investors would put their money to work in profit-making ventures such as factories or office buildings.
Today, Japan and seven major European governments, including Germany and France, are able to sell bonds with negative yields, as are corporate behemoths Nestlé and Sanofi, whose size gives investors confidence they could withstand a downturn.
The United States hasn’t seen such upside-down bonds yet, though the yields on U.S. government debt have plunged, with at least one yield reaching new lows Wednesday. In recent days, top analysts at two giant investment houses — Pacific Investment Management Co. and JPMorgan Chase — have predicted that U.S. Treasury bond yields could go to zero or lower if the United States tumbles into recession.
“This is the ultimate indicator that something is fundamentally wrong with the world economy,” said Adam Posen, president of the Peterson Institute for International Economics. “The escalation of the trade war is making it worse.”
This also suggests that banks could soon be charging people to save and paying them to take on more debt. Why would they do that unless taking on more debt has become so risky that banks are willing to give you a financial incentive to borrow?
It's a really interesting article. Everything is upside down thanks to the Federal Reserve and government policy creating great distortions in the market. See my previous two posts for more on this subject.