As he rightly says GurusBlog, the US Treasury is already lending money for nothing. 3-month Treasury bills (T-Bills) at 0.005%. Even with negative interest rates, there is significant intraday trading on the secondary market. According to some, this is the effect New Year's Eve, which requires cash investments in sovereign debt at any price, even if it means paying for it. According to Chris Ahrens: “Everyone wants to be on the books as the year draws to a close. Buy now while the opportunity is still there.”
And now we’ve reached the end of the year with $ rates at almost zero. A historic milestone, and yet perhaps not enough. Our sins require further penance.
I fear, however, that the Three Kings will not bring us liquidity, but rather coal in the form of systemic dysfunction. Symptoms of deflation, no doubt about it. There are only two weapons to combat it: monetary and fiscal policy, although many minds must be searching for another. And God willing they find one, because we’re going to need it. What’s more, liquidity has already dried up and we’ve fallen into its trap. In a recessionary scenario, monetary policy is unlikely to encourage saving over investment, as it did during periods of economic expansion.
I recommend a bit of theory and a insightful reflection by Marc Vidal. The clear definition of the liquidity trap It seems to condemn us to financial paralysis, where not even the hoarding for those with liquidity, this will be easily feasible, as the global banking sector is being saved from bankruptcy by the governments themselves. Or rather, by the central banks, through an increase in cluster M1 as we mentioned in that article.
The cash has been tied up and won’t see the light of day for years. The million-dollar question (or thousand-dollar question, to get us used to the idea) is where his stash will be.
Meanwhile, some people are still carrying on with their Head-in-the-sand mentality (despite the sensitivities that article touched upon). The very same mindset that yielded such mediocre, albeit positive, results in an expanding economy will—in a recessionary environment, complete with a liquidity trap—amount to financial ruin in far less than a decade. What will happen to the RF in general, given its interdependence with and vulnerability to the liquidity trap? In our view, this is the great unknown at the moment. What is clear, however, is what is causing us to lose asset value, and which is likely to continue over time. But we’ll discuss that in a future article.
«It isn’t so much about buying as cheaply as possible as it is about buying at the right time.»Jesse L. Livermore (1877-1940)
Even in the midst of deflation and Liquidity Trap, Mr Livermore. Isn't that right?