The Sudden End Of ZIRP Government Borrowing

Nearly 20 years ago, I was aghast when Japan dropped interest rates on government loans to near zero.  It makes no sense at all.  Even if Japan reduced ‘inflation’ to zero or negative territory, the value of savings still has to have some positive value.  Otherwise, capital flees.  Japan cynically sucked up the savings of the older generations but they are no longer feeding money into it due to harsh, real inflation.  Hidden from government statistics, just like in the US.  The ZIRP government borrowing system is in global trouble due to energy inflation costs and savings fleeing to better venues.  


The collapse of ZIRP borrowing is most dangerous for the deepest in debt, first world nations which became very addicted to not paying for running empires but instead, piled on immense amounts of debts thinking, there is no overhead cost to debt so why worry?  Of course, the problem is, suddenly, ZIRP borrowing will shift to INFINITY borrowing.  And the shift is sudden, not gradual.


This is because the overhang of debt accumulated during the ZIRP borrowing phase pushes these countries (the EU, UK, US and Japan) into a debt crisis.  Namely, the way debt servicing operates is very simple to understand: the less debt one owes, the less credit risk and therefore, the lower rates one has to pay on a loan.  If one owes a lot of debt, the interest rate on NEW loans MUST rise to reflect the prospects of default.


Ergo: if a borrower is borrowing money to pay for past loans even if these loans have minuscule interest rates, then one is already bankrupt but not yet in full default.  On the other hand, if one has too much debt vis a vis a country’s GDP, then one is bankrupt even if not yet in full default.  The two things that determines if one is bankrupt is, are there sufficient assets to seize if there is a default?  And can one seize these assets? 


Many a third world country has discovered that if they go into debt to NATO countries, they end up losing the value of national assets such as commodity producing areas, transportation or even half of the country being suddenly torn away and handed over to a puppet regime, for example.  The penalties are very harsh. Poor Gaddafi discovered that even with lots of sovereign wealth, if one can’t fight off the army of bankrupted NATO countries, one will also be looted.


Germany is the world’s #2 sovereign wealth nation.  This is highly significant because Germany still borrows money to run things rather than raise taxes.  Germany’s debt to GDP ratio is one of the strongest of the NATO nations.  Even so, the recent bond sale that flopped has set teeth chattering in Europe today:  Germany Rejects Euro Bonds After Auction – Bloomberg


German bunds fell a second day. The 10-year bund yield rose as much as 10 basis points, or 0.1 percentage point, to 2.25 percent, the highest since Oct. 28 and was at 2.19 percent at 11 a.m. London time. Bids at yesterday’s auction of 10-year securities amounted to 3.889 billion euros ($5.2 billion), out of a maximum target for the sale of 6 billion euros….


“As the crisis deepens with yesterday’s bond auction, the veil has been torn off Merkel’s policy of muddling through,” Sebastian Dullien, a senior fellow at the European Council on Foreign Relations in Berlin, said in a telephone interview. “It’s only got us closer to the end-game, either the breakup of the euro or euro bonds. The strategy has failed.”


…“The flop shows that bunds are losing their sex-appeal as an extremely secure investment,” Germany’s Handelsblatt business newspaper said in a commentary today. “This shows the crisis has reached the entire euro-zone core. France, Finland, the Netherlands and Austria have to pay more interest for their bonds than just a few months ago.”


I have been on this planet Earth quite a while.  A 2% bond to me looks like a ridiculously low interest rate! Yes, the rates are going up!  DUH!!!! They MUST go up!  They cannot nor should have ever fallen to below 3% and when they did, this was a bad sign, not the ‘going up’ is a bad sign.


Inflation is higher than that so of course, bond buyers want to buy bonds of countries giving higher, not lower, interest rates of return!  Japan can’t sell its bonds to anyone except the Chinese and they are buying only because they want to control Japan, not to make money.  The Chinese and Japanese purchase of super-cheap US loans was for the same purpose: to control trade, not to make a profit via holding debts.


This action of holding a foreign nation’s debt not to make profits from the debts but to make profits in trade has totally warped bond sales, world wide.  This is all part of the noxious free trade/floating fiat currency system.  It hasn’t stopped, it is now so lopsided, and thanks to ZIRP borrowing, out of whack with any reality, it is now exploding in everyone’s faces.  No surprise.  It is all connected with individual trade deficits and sovereign wealth funds of trade profits.


No one wants to hold German debts at ridiculously low rates because they get no trade benefit from this!  End of story.  The US still sucks down immense seas of foreign trade so everyone exporting to the US will continue to buy our government debts even if this debt is degraded by the ratings agencies.


Not only is sovereign debt of the top ‘wealthy’ nations in serious collapse, many of the floating fiat currencies are in trouble, too.  This is no surprise to me since the entire system depends on the US dollar, not gold, to determine how one resolves future value of trade goods and international exchanges.  The unstable dollar has made this nearly impossible to do: – Home of the Daily and Sunday Express | UK News :: Germans try to kill off pound


In a chilling threat to UK sovereignty, German finance minister Wolfgang Schauble predicted that all Europe would one day use the single currency. “It will happen perhaps faster than some in the British Isles currently believe,” he said.


His sinister warning followed the emergence of a secret German plan to build a powerful new economic government for the eurozone and block an EU referendum in Britain.


HAHAHA…absolutely everyone in the EU is demanding that sovereign wealth nation, Germany, bail them all out.  At the same time, they don’t want to do what the Germans order, either. They want to tell the Germans, what to do.  This is similar to the US relationship with China: we still want to order the Chinese creditors around while whining about our finances.


The Germans have no need to save the entire EU system if this means they give up not just their own sovereignty but their sovereign wealth and get in return, nothing.  Someone has to pay something.  When any third world nation is in trouble, the IMF imposes great seizures of national wealth and savings!  So, if the Germans have to be the IMF for Europe then Europe has to let Germany be the IMF.


Odd to say, isn’t it?  The US believes that we can owe China huge sums and at the same time, pay virtually no interest…forever!  And at the same time, menace China with our military and talk openly about going into default just so we can harm China!  The EU has to understand that creditors get to set many of the rules if one wishes for more loans.  And the creditor nations have to understand that ZIRP lending is bad for them just as it is very bad for the US and Japan.


We have had global inflation in key, vital sectors: food and fuel—for the last decade.  And this inflation floats on top of a drop in value of various vital assets: property and factory values.  This sort of disconnect has happened once before.  During the ‘stagflation’ years in the US, we saw the exact same thing.  Japan has had no inflation due to a collapse in property values but has had quite significant food and fuel inflation which has made the population there significantly poorer even as the government borrowed at ZIRP rates.


Japan’s future is far from bright, indeed, it is black as octopus ink:  Japan Risks Rating Downgrade as S&P Says Public Finances Are Deteriorating – Bloomberg


“Japan’s finances are getting worse and worse every day, every second,” Takahira Ogawa, director of sovereign ratings at S&P in Singapore, said in an interview. Asked if that means he’s closer to cutting Japan, he said it “may be right in saying that we’re closer to a downgrade. But the deterioration has been gradual so far, and it’s not like we’re going to move today.”


…Japan’s lower house of parliament today approved legislation that would add an additional 2.1 percent levy to an individual’s annual payment. Lawmakers revised the government’s proposal to extend the period of the measure to 25 years, from 10 years, to help pay for earthquake rebuilding. The measure takes effect in 2013…Japan’s policy makers have signaled they will double the nation’s sales tax from 5 percent by around 2015…


Japan’s debt is not downgraded only because Japan has, until this year, run trade surpluses.  This year, thanks to the tsunami, earthquakes and Fukushima, the trade statistics are terrible.  But not anywhere near US trade statistics.  No country on earth has run bigger trade deficits than the US has run for the last decade!  Not even close.


If a 10% sales tax is imposed, this is a very ‘regressive’ tax in that it hammers the poor very hard.  Since most of what they buy is things for barest survival, this will be a 10% tithe on food and fuel.  If the proposed tax is supposed to last for more than 20 years, this means it is pretty much permanent.


Another way to look at this is inflation: Japan will have this 10% inflation in prices for the foreseeable future.  This is inflation but will not be revealed in statistics which leave out sales taxes when calculating inflation.


As for the hideous nuclear mess which has pretty much totally destroyed the entire economy in eastern Japan, as well as driving down the value of real estate there to zero:  Fukushima worker confesses “There is nothing left that we could do” | Fukushima Diary


In short, he says Tepco started reducing the number of workers because they can not do anything for the reactors anymore. Even though they stock lots of workers, there is no clue to do something most important.


…The interiors of the buildings are extremely radioactive and nobody can officially go into reactor 3 … They can never go into the basement floor of the reactors either. The only thing they can do is to analyze the gas from inside of the container vessels.


Thus nothing can be done by humans anymore. They can only clean debris, take away broken operation floor, maintain the water purifying system, setting new tanks etc..


As I said the very first week, this is Chernobyl and this is unfixable.  So far, the workers have whispered the truth but TEPCO and the government refuse to understand, they think they can dig up all the dirt, plant sunflowers or dump nuclear waste directly in the Pacific Ocean and it will cease to be a problem.


This is a ‘China Syndrome’ affair, perhaps much worse than Chernobyl since it was all of the reactors going at the same time, not one.  And unlike Chernobyl, the reactor containment vessels are all broken by the earthquake, thus, ceased containing their nuclear rods a long time ago.  This is truly a full-throttle meltdown and has very significant reactive actions.  Here is a video of running riots in France as people there protest nuclear power and the movement of trains from Germany to France to process nuclear waste:

Now, last of all, the financial meltdown continues.  People foolishly thought, well, the government bonds are worthless due to ZIRP rates, the stock market was bad but hark!  The commodities futures markets were hopping!  This caused global inflation, but so what?  Money was poured into operations giving 60% returns in ten years due to ‘clever’ trading.  Only…like all previous bubbles, when the commodities bubble popped, people discovered that some of the Chicago board traders were actually…get this…pirates and gnomes looting them, not trading!   MF Global Customers Missing $1.2 Billion Denied Court Committee – Businessweek


Customer accounts believed to hold $5.45 billion were frozen Oct. 31, the day after the New York-based company reported a shortfall in funds that are required to be segregated under rules of the U.S. Commodity Futures Trading Commission. A previous estimate of about $600 million in missing funds was raised to $1.2 billion yesterday by James Giddens, the trustee appointed to liquidate the company and distribute refunds to customers… customer accounts are missing about 22 percent of the total of $5.4 billion held in segregated accounts…


…“Nobody in the legislative history of this country thought about a case like this,” Lewis Kruger, a lawyer for a group of customers, argued before Glenn today. “This case may determine whether there is a commodities market in the future. I have great concern about what’s going to happen in this industry. This is a far-reaching case and it needs to have an imaginative resolution.”…The next motion the trustee will make will deal with “truing up” all customers to make sure everyone gets 60 percent of their collateral, Kobak said. It will also deal with the issue of bounced checks, which are estimated to be worth about $50 million, Kobak said.


Good grief in hell.  This is EXACTLY what happened in the Great Crash of 1929-1933.  Not even slightly different.  Indeed, this would never have happened if the FDR reforms weren’t tossed into the trash can during the last 20 years!  Duh!  The commodities future trading system was set up to deal with farm produce.  No other reason.


During the OPEC wars, the price of transportation fuels fluctuated immensely so, to protect themselves, industries using these fuels went into futures trading.  I even once belonged to a small consortium of landlords in NYC who played the home heating fuel commodities in Chicago via the son of one of our members who worked there.  We even arranged to lease an oil holding tank in Greenpoint and had a contract with an oil  hauler for delivery systems.


This is all good and normal activity.  Playing the markets to make a killing via placing bets is noxious.  People who didn’t need, say, home heating fuel, would play the markets in order to DRIVE UP the price of fuel and then force people to buy it at this much higher, ruinous price.  This was totally out of control by 2009.


Money poured like a tsunami into COMEX futures.  And a series of very nasty bubbles formed.  And then popped.  And as usual, the double dealing, open stealing culture that thrives in this sort of bubbly climate, was revealed.  Namely, these were criminal fleecing operations.  Not just fleecing the investors but fleecing the buyers who needed these commodities in the first place!


Now, thanks to everyone pouring their savings into futures speculation designed to drive up prices to hideous levels are now being beggared.  Well, I say, this serves them all right!  They drove much of the world into revolutionary rage due to high food and fuel prices, for example.  They hoped to live idly in mansions while the rest of humanity starved or froze to death.


The gold bubble didn’t harm people like the other commodity bubbles.  It was only a cynical operation to suck up the savings of foolish people and then run off with the loot (NOT THE GOLD).  As I often warned people, commodity markets are quite dangerous indeed.  A woods filled with wolves.  Note that the poor investors hoping to hike the price of everything in sight, will now get only 60% of the money back that they handed over to these pirates!


Even ZIRP government bonds bring better returns than that!  And how many other trading houses are doing the same thing?  Want to peek under that rock?  More than one!  The SEC was defanged by Congress and Congress voted to undo all the FDR reforms and Congress, ultimately, is responsible for everything and can’t even pass a simple budget (hint: stop all the wars and close 1,000 US foreign bases, dummies!).


Oh, and…happy Thanksgiving!  For the first time in years and years, I am NOT doing Thanksgiving due to my severely injured left foot.  The operation is in roughly half a month and I get to spend Xmas in a wheelchair, ordering everyone around.  Heh.  Hope everyone here has a nice day today.

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Filed under .money matters, Free Trade

18 responses to “The Sudden End Of ZIRP Government Borrowing

  1. DeVaul

    Happy Thanksgiving, Elaine!

    At least this year you can avoid the oven and snooze behind the couch like most guests do. No one expects you to cook while in a wheelchair. Time to relax and play with your cats.

  2. Peter

    I don’t remember you mentioning your foot ,what did you do to it if I may ask?It’s very sobering when you can’t walk around,you realize how important being mobile is!
    I see Iris reported an earthquake North Vancouver Island,and California..what do you think?

  3. DeVaul

    I guess some of the conspiracy theorists were right. Some idiot scientist had developed a flu virus that can kill half of humanity, and he wants to publish it to get credit for his research. Scientists have lost all touch with reality. They cannot even make a clear ethical statement such as: We should never have done this.

    From Russian Times:

  4. Claire Voyant

    The fall of MF Global has exposed all kinds of financial shennanigans, causing commodities investors to question the probity of exchanges that are supposed to self-regulate, like the Chicago Mercantile Exchange. The Merc’s audit was supposed to have caught blatant crookedness MF Global, which had $1billion parked at the CME … instead however, the Merc claims its auditors were ‘misled’ when MF maneuvered funds out of customers’ accounts after the audit.

    That was bad enough, but what happened next has outraged other members of the Exchange and shaken peoples’ faith in the exchanges themselves. As a self-regulating entity, the CME collateralizes all its members’ accounts against both existing and potential adverse market rate changes, thus providing a nearly fool-proof guarantee that one customer’s bankruptcy will not impact either the other members, or anyone trading through them. Should catastrophe happen to strike one large member, the Exchange’s rules require that it pass the hat among all its broker members to make up the collateral difference for the bankrupt member. Even so, the Exchange had always promised that individuals who deal on the exchange would not be affected.

    But instead of passing the hat, or using its own reserves to cover the shortfall caused by MF Global’s implosion, the Merc made up the shortfall by grabbing individual investor monies – specifically, investors who were trading on the CME through MF Global – by seizing their collateral and freezing their positions.

    But what happened to the insurance that the brokerage industry always said was available to protect individuals from this sort of loss? This insurance is provided by the Securities Investor Protection Corp., which acts like a private version of the FDIC, the federal agency that guarantees the safety of depositors’ accounts at commercial banks. The brokerage industry designed SIPC to convince individuals it was safe to move their money out of banks, where government insurance protected their funds, and into brokerages, where private insurance would protect them instead. It now turns out the SIPC may not have enough resources to reimburse all the investors for the amounts insured.

    It remains a mystery why, contrary to its own rules, the Merc grabbed individual accounts to cover losses by MF Global instead of asking its other members to pony up, but that hasn’t stopped some from speculating that the wheels may be coming off the Exchange itself. Some members may not have had the funds to cover their share of the losses. Others say that, while members might have been able to cover one large bankruptcy, a second event would have brought the whole Exchange down.

    The suspicion remains that, by acting in an unprecedented way that not only damages its own reputation but exposes the lie that member accounts are “safe and insured,” the CME may actually have been covering for other severe problems it may know exist with major market participants, such as banks and other large brokers. Only some serious secret knowledge may have made the Merc willing to take a serious hit now, in hopes of giving itself some maneuvering room later.

    But “later” may come sooner than expected, as money flees the exchange. One broker, Ann Barnhardt, has shut down her business rather than continue to assure her clients that their money and positions were safe in the options and futures markets when obviously they are not. The account seizure says loud and clear to individual investors, that their funds are not safe at the brokers with whom they deal, nor are they safe from the CME itself.

    Panic may now be spreading throughout other exchanges the gnomes once thought to be safe and beyond reproach, such as the over the counter market for Credit default Swaps (CDS) — the heart of the Derivatives Beast itself! For a lucid account of how the MF Global failure exposes a nest of problems on far-flung exchanges among diverse parties, the following post is instructive:

    … confirms what Elaine has been discussing for years, the widespread scams and rot pervading world financial systems.

    Happy Thanksgiving to all … let’s pause to take pleasure in the things of true value in life … love,friendship, the beauty of blue skies against a windswept hill as the late Fall day fades into inky twilight. Best wishes to Elaine for speedy healing, and many enjoyable hours bossing compliant friends and family around — you deserve these small indulgences!

  5. adamm

    Happy Turkey day: all ‘mericans at home and abroad.

    Here is a seeking alpha great chart of all you wanted to know about the money in this world :

    That should put things into context…. spread this one around far and wide to open the eyes of the people.

    Money is crushing people all over as those who own and OWE, are determined to maintain and in fact increase their control of all of us.

  6. San oversee

    1972年,日本著名歷史學家 井上清 Kiyoshi Inoue 寫了 《釣魚島的歷史解析》 一書,該書再版為書名 《釣魚島歷史與主權》。



    眾所周知,釣魚群島自明朝以來就是中國的領土 – 井上清寫到日本及琉球在1867年以前實際上沒有一份釣魚群島的歷史文獻。



    井上清幾乎是在日本有影響力的歷史學家當中唯一一個敢于尊重事實,堅持說釣魚群島屬于中國的 – 這樣絕無僅有的一個例證。

  7. Aussie

    Dear Elaine,

    Happy thanksgiving and our best wishes towards your recovery and successful operation.

  8. Bill

    Happy Thanksgivings Elaine! Hope you recover soon and keep your posts coming.

  9. Plove

    Better immune systems with fewer vaccines.


    ELAINE: I love flu shots. Haven’t had a cold in over a decade! I love it!!!! Those who fear going without annual illnesses are free to get sick. But I do not miss having an annual flu.

  10. knoll

    sorry about your ft. hurtmine too. ‘just’ sprained. get better!!

  11. Gavin

    Happy Thanksgiving, Elaine!

  12. Elaine, you refer to the news article which relates His sinister warning followed the emergence of a secret German plan to build a powerful new economic government for the eurozone and block an EU referendum in Britain.

    I reply Germany is rising out of the European sovereign debt crisis to be Europe’s taskmaster. A revived Roman Empire is building in the EU as a fulfillment of bible prophecy. A New Europe is emerging as the first authoritarian kingdom of the Ten Toed Kingdom of Regional Economic Government as called for by the Club of Rome in 1974, and as presented in bible prophecy of Daniel 2:33.

    Regional pooling of sovereignty will establish regional economic government, both in the EU, as well as globally, to provide for resource capability, financial security and economic stability.

    Having experienced sovereign insolvency, all of the periphery nations, Portugal, Italy, Ireland, Greece and Spain, the PIGS, well the PIIGS, are no longer sovereign nation states. These countries will have to look to EU ECB and IMF leadership, that is EU ECB and IMF Troika and its diktat, and their sovereign authority for seigniorage, that is moneyness. Although one or more of the EU periphery countries may depart the common currency, there will be no breakup of the common currency zone. Economic libertarians, who foresee sovereign nation states such as Germany emerging out of the current crisis are going to be very disappointed. Their thinking is based upon the logic of Austrian School of Economics leaders, Hayek, Mises and Rothbard, and championed by Ron Paul.

    The political dynasties of European Socialism in the periphery countries of Portugal, Italy, Greece, and Spain, that provided pork via patronage, are history. A new paradigm, that being, regional economic government is emerging in the EU.

    Stephen Foley in the Independent What Price The New Democracy? Goldman Sachs Conquers Europe communicates that the Euro currency union, is the Goldman Sachs investment bankers project, and that it is continually striving for consensus that the creditors be paid in full. This is the basis of the mandate for expansionary fiscal contraction being demanded by the Euracracy.

    God is acting sovereignly, Ephesians 3:1-11, Revelation 2:26-27, to effect a coup, Revelation 6:1-2, to bring a Sovereign and a Seignior to power in the EU. These will provide Euro zone wide seigniorage, that is moneyness, for a New Europe. The former Eurozone had its political capital from the people across Europe. The political capital of the New Europe will come from federalist leaders in Brussels, Berlin, France, Goldman Sachs, and the technocratic governors of the periphery countries.

    Roy Schwarcz writes that bible prophecy of Daniel 2 and Revelation 13 communicates that Germany and a powerful leader will rise to empower a European Super State in a type of Roman Empire. “The Roman Empire fell apart from within, no enemy destroyed it. Rome is living in the great nations of Europe today: Italy, France, Great Britain, Germany, and Spain are all part of the old Roman Empire. The laws of Rome live on, as well as the language. Latin today is the base of French, Spanish, and other languages. Her warlike spirit lives on also as Europe has been at war ever since the empire broke up into these kingdoms. What is happening in Europe today? There is a diminishing of the nations and a unifying of the people with a common currency, common markets and common government. The foundation is being laid for the man who is coming someday to put the Roman Empire back together again.” This man will be the Sovereign of Revelation 13:5-10.

    This New Charlemagne, will be accompanied by the Seignior, Revelation 13:11-18, the top dog banker who takes a cut. Together they will provide the seigniorage of diktat, as the seigniorage of freedom, that existed under the Milton Friedman Free To Choose floating currency regime, is history. The word, will and way of these two will provide moneyness, and the people will be amazed and follow after it, giving it their full allegiance, Revelation 13:3-4. The faith based Milton Friedman Free To Choose Neoliberalism is ending. The faith based Beast Regime of Neoauthoritarianism is commencing, yes rising out of the Mediterranean Sea profligates, Revelation 13:1-4. The Beast System has seven heads, symbolic of occupation in mankind’s seven institutions, and ten horns, symbolic of government in all of the world’s ten regions.

  13. “The operation is in roughly half a month and I get to spend Xmas in a wheelchair, ordering everyone around.”

    heheheh….Elaine Strangelove. Maybe the foot operation will cure that uncontrollable arm *tic* …lol. Ah..wouldn’t it be nice if someone sane was in the position of “ordering everyone around”?

    Happy Holidays. I’m predicting this will be our last Free Thanksgiving, before martial law has been instituted…

  14. Plove

    Keep some silver handy.

    Good luck.

  15. knoll

    vid of former asst. treasury secretary calling out the private banks’ financial warfare against germany for trying to do the right thing and make banks eat their own stupid losses

  16. emsnews

    Yes, I have a cat on my lap now. All I need is to hijack our nuclear arsenal!

    Revenge! 🙂

    On the other hand, I would have to deal with handsome Crown agents storming my mountain home. And am much too old to appreciate such charmers so maybe I should just knock 007 off. 🙂

  17. DeVaul

    Forget knocking off 007. Just become his new boss.

    Dmity (in Russian accent): “I hear the new M is a woman.”

  18. Pingback: A Revived Roman Empire Is Forming In The EU ….. Deflation Accelerates In Japan « EconomicReview Journal

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