Devalue Or Die; Negative Interest Rate Wars Have Begun

Don’t part with your illusions. When they are gone, you may still exist, but you have ceased to live. – Mark Twain

The “devalue or die” currency wars are picking up steam; Japan’s central bankers are not alone when it comes to taking rates into negative territory. A host of European nations are now joining the bandwagon, and the latest victim is Sweden.  We alluded to this development a long time ago and published a host of articles on this topic.  Central bankers Worldwide understand that the only driving force behind the magical recovery in the U.S is “hot money” and that is the only weapon that can maintain that illusion. Get ready for negative rate wars; imagine having to pay the banks to keep your money; soon people will start to question the value of banks.

Sweden’s central bank stated that they would continue to follow this path to achieve their targeted rate of 2% inflation in 2017. Our response is good luck dudes; this is not going to be possible because of the velocity of money that has dropped dramatically.  You have to create money and put it into the hands of the masses to create chaos, oops we mean boom and bust cycles.  This was the precursor to the subprime mortgage crisis of 2008.

What is velocity of money? Well as the term implies it is the speed at which money moves around. When an economy is healthy, money tends to move around quite rapidly as there is a lot of buying and selling. Sadly the opposite is occurring today; the velocity of money has been in free fall since the housing crisis. We will address this topic in more detail in a follow up article.  The extremely low velocity of M2 money stock clearly illustrates that this economic recovery as we have so many times pointed out, is nothing but a hoax.

Sweden’s central bank reduced the repo rate to: negative 0.50% from negative 0.35%.  The Krona as expected dropped, as that is really what the whole purpose of this exercise is all about.  Competitive currency devaluations are here to stay, and there is a race which tends to reach the bottom.