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11 tweets,
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This tweet, more than anything else I've said about negative yields, has pissed a lot of people off, so I'd like to offer a brief non-troll explanation of how I'm thinking about the topic...
If you think about massive wealth accumulation back in history (before the world became financialized), getting rich meant acquiring lots and lots of stuff (palaces filled with art and wine etc.)
But as folks like @teasri have noted, in a more financialized world, the ultra-wealthy don't need to acquire lots of land and stuff. They just acquire pieces of paper (or not even paper, entries on a computer entitling them to financial assets)
But if you think about the accumulation of real assets, it's obvious that they carried permanently negative interest rates. People didn't call it as such, probably. But maintaining huge palaces and so forth was obviously an expensive, ongoing proposition. All kinds of maintenance
So now we live in a world where a handful of people have acquired Versailles-levels of paper wealth. And so it's natural and normal that at the extremes, just the maintenance of it will have a carrying cost. It's the natural way.
And if you think about the ultra-wealthy in places *today* with less mature and less stable financial systems, they're often associated with ostentatious displays of wealth (think about the stereotypes of Russian billionaires: yachts have high carrying costs)
So bottom line is it's not that weird to pay to preserve one's wealth, and if you're pushing the extremes of paper financial holdings, at the edge, the returns will be negative. Actual nominal negative yields on bonds are an extreme manifestation of it.
And honestly I think one can look at the gigantic size of the wealth management industry (in various forms) as evidence that carrying financial wealth has always come at a cost.
Anyway, that's all I meant by negative yields being natural.
*Paying 2% annually to a hedge fund manager to preserve your wealth* -- Totally normal, well-functioning capitalism
*Paying 0.1% annually to hold risk-free government debt* -- A central banker cabal is ruining the world!
*Paying 0.1% annually to hold risk-free government debt* -- A central banker cabal is ruining the world!
Don't worry. The negative rates tweeting will end in a week when I get back from paternity leave. But in the meantime, I've gotta think about something when I'm up at 1:30 AM feeding a baby.
