We could see negative 5-10% real interest rates in the U.S. soon.
@LukeGromen believes a bubble in sovereign debt could lead to these negative interest rates.
So what would this mean for hard assets like gold and Bitcoin?
Let's find out 👇
@LukeGromen believes a bubble in sovereign debt could lead to these negative interest rates.
So what would this mean for hard assets like gold and Bitcoin?
Let's find out 👇
Quick overview:
The U.S. has experienced a collapse in real rates in recent months.
This means means inflation is greater than the nominal interest rate.
The yield on 10-year TIPS bonds is negative 1.04 and has hovered around negative 1% since August.
The U.S. has experienced a collapse in real rates in recent months.
This means means inflation is greater than the nominal interest rate.
The yield on 10-year TIPS bonds is negative 1.04 and has hovered around negative 1% since August.
Why is this happening?
We’re experiencing the first global sovereign debt bubble in 100 years.
When a sovereign debt bubble bursts, governments only go bankrupt if they decide to not print money.
We’re experiencing the first global sovereign debt bubble in 100 years.
When a sovereign debt bubble bursts, governments only go bankrupt if they decide to not print money.
Historically, the number of governments with a fiat currency that have decided to basically shrink themselves to avoid printing fiat currency is a very short list.
They almost always print.
They almost always print.
Printing more money means inflation.
Eventually interest rates will respond to this inflation.
As inflation rates rise, bond holders are likely to sell to avoid losing money.
Eventually interest rates will respond to this inflation.
As inflation rates rise, bond holders are likely to sell to avoid losing money.
The problem is that interest rates rising in the midst a sovereign debt bubble makes the government’s fiscal position worse.
Now they have to pay more interest on their really big debt pile, and that puts them in a worse position.
Now they have to pay more interest on their really big debt pile, and that puts them in a worse position.
This means they have to print more to pay off interest, which sends interest rates higher, and it turns into a debt death spiral.
Negative real rates cause investors to move into stores of value assets like real estate, metals and Bitcoin as a hedge against riskier assets.
Negative real rates cause investors to move into stores of value assets like real estate, metals and Bitcoin as a hedge against riskier assets.
So where is this all going?
@LukeGromen says:
I think at a very minimum, before this is all said and done, we’re likely to see negative 5-10% real interest rates in the U.S.
And I think they could be lower than that, potentially!
@LukeGromen says:
I think at a very minimum, before this is all said and done, we’re likely to see negative 5-10% real interest rates in the U.S.
And I think they could be lower than that, potentially!
Gromen emphasized that while there is no formula to predict the exact rate, there is history.
He points to post-World War II America, where real rates dropped to negative 14%.
He points to post-World War II America, where real rates dropped to negative 14%.
"Directionally, I look at it and say ‘we’re in a worse position than we were during World War II, and we saw negative 14% then.
Is it really possible that the bottom was negative 1.1%?
I suppose it’s possible, but it strikes me as highly unlikely."
Is it really possible that the bottom was negative 1.1%?
I suppose it’s possible, but it strikes me as highly unlikely."
Big thanks to @LukeGromen for sharing his predictions with @caseywagnerr.
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If you enjoyed this thread, you can read the entire article below.
While you're at it, follow @Blockworks_ for more threads like this one.
blockworks.co/macro-analyst-…
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