Best of the Week
Most Popular
1.Gold Price Trend Forecast, Where are the Gold Traders? - Bob_Loukas
2.Stocks Bear Market of 2017 Begins? Shorting the Dow At its Peak! - Nadeem_Walayat
3.Betting on President Trump Leaving Office Early, Presidency End Date - Betfair Market - Nadeem_Walayat
4.Why Stock Market Analysts Will be Wrong About 2017 - Clif_Droke
5.Is This The Best Way For Investors To Play The Electric Car Boom - OilPrice_Com
6.Silver Price 2017 Trend Forecast Update - Video - Nadeem_Walayat
7.Gold Price Set For Very Bullish 2017, Trend Forecast - Austin_Galt
8.10 Things I learned From Meetings With Trump’s Transition Team - - John_Mauldin
9.How Investors Can Profit From Trumps Military Ambitions - OilPrice_Com
10.Channel 4 War on 'Fake News', Forgets Own Alt Reality Propaganda Broadcasting - Nadeem_Walayat
Last 7 days
The Best Reasons to Buy Gold in the Age of Trump - 22nd Feb 17
Silver, The Return of Stagflation - 22nd Feb 17
Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - 22nd Feb 17
Gold: Short End US Rates Matter More Than Long End Real Yields - 22nd Feb 17
CONTINENTAL RESOURCES: Example Of What Is Horribly Wrong With The U.S. Shale Oil Industry - 22nd Feb 17
Here’s Proof Rising Rates Are Good for Gold - 21st Feb 17
Gold and Silver Weekly Update - 21st Feb 17
US Dollar and Gold Battle of the Cycles - 21st Feb 17
NSA and CIA is the Enemy of the People - 21st Feb 17
Big Moves in the World Stock Markets - Big Bases - 21st Feb 17
Stock Market Uptrend Continues - 21st Feb 17
Brent Crude Oil Price Technical Update: Low Volatility Leads to High Volatility - 20th Feb 17
Trump’s Tax System Could Spark The Wave Of Self-Employment - 20th Feb 17
Here’s How to Stay Ahead of Machines and AI - 20th Feb 17
Warning Signs Of Instability In Russia - 20th Feb 17
Warning: This Energy Investment Could Wreak Havoc On Your Portfolio - 20th Feb 17
The Mother of All Financial Bubbles will be Unimaginably Destructive when it Bursts - 19th Feb 17
Gold’s Fundamentals Strengthen - 18th Feb 17
The Flynn Fiascom, the Trump Revolution Ends in a Whimper - 18th Feb 17
Not Nearly Enough Economic Growth To Keep Growing - 18th Feb 17
SPX Stocks Bull Market Continues to make New Highs - 18th Feb 17
China Disaster to Trigger Gold Run, Trump to Appoint 5 of 7 Fed Governors - 18th Feb 17
Gold Stock Volume Divergence - 17th Feb 17
Gold, Silver, US Dollar Cycles - 17th Feb 17
Inflation Spikes in 2017, Supporting Gold Prices Despite Increased Odds of March Rate Hike - 17th Feb 17
Roses Are Red... and So's Been EURUSD's Trend - 17th Feb 17
Gold Trade Note Sighted - 17th Feb 17
Gold Is Undervalued Say Leading Fund Managers - 17th Feb 17
NSA, CIA, FBI, Media Establishment 'Deep State' War Against Emerging 'Trump State' - 16th Feb 17
Silver, Gold Stocks and Remembering the Genius of Hunter S. Thompson - 16th Feb 17
Maps That Show The US’ Strategy In Asia-Pacific - 15th Feb 17
The Trump Stock Market Rally Is Just Getting Started! - 15th Feb 17
Tesco Crisis - Fake Prices, Brexit Inflation Tsunami to Send Food Prices Soaring 10% 2017 - 15th Feb 17
Stock Market Indexes Appear Ready to Roll Over - 15th Feb 17
Gold Bull Market? Or was 2016 Just a Gold Bug Mirage? - 15th Feb 17
Here’s How Germany Buys Time From China - 15th Feb 17
The Stock Trader’s Actionable Guide to Trump - 15th Feb 17
Trump A New Jacksonian Era? The Fourth Turning (2) - 14th Feb 17
Stock Market Yet Another Wall Street 'Witch's Brew' - 14th Feb 17
This Is Why You Don’t Own A Lot Of Stocks - 14th Feb 17
Proposed Tax Reforms Face Enormous Headwinds - 14th Feb 17

Market Oracle FREE Newsletter

State of Global Markets 2017 - Report

Gold, Silver, Zika, ZIRP, and NIRP Viruses

Stock-Markets / Financial Markets 2016 Mar 14, 2016 - 05:28 PM GMT

By: DeviantInvestor

Stock-Markets

The Zika virus is the newest threat to humanity, especially pregnant women, so they say.  Big Pharma is working feverishly to create a vaccine.  Chances are the vaccine will be created, highly profitable, and Big Pharma will be “held harmless” for injuries to those who were vaccinated.

Add GM mosquitos, birth defects, Brazilian Olympics, big profits, and the story becomes a huge distraction.  John Rappoport has suggested there is more to the story.


There is money to be made on vaccines and GM mosquitos, and money to be lost if sales of pesticides and other chemicals are reduced.  It is clear in which direction the politics will lean.

The Zika virus should remind us of other strange activities in the financial world.

——– Speculation and Sarcasm Alert ————-

What if we think of ZIRP (Zero Interest Rate Program) as a financial virus, created and distributed by the central banks, that infects pools of savings?  Symptoms are:

  1. The ZIRP virus weakens and gradually destroys pension funds. Retirees, beware of this virus!
  2. The ZIRP virus destroys income for personal savers. People saved for decades and now their savings yield little or nothing in interest.
  3. The same has occurred with Insurance companies – they earn little on their bonds compared to what they previously earned.
  4. Governments must (in theory) increase their contributions to retirement plans to supplement the decreased earnings due to the deleterious effects of the ZIRP virus. Consequently some governments are closer to insolvency and should curtail expenditures.  Retirees, this is another warning!
  5. The bond market is further levitated in its 35 year bull market. This benefits the political and financial elite  …   until it crashes.

The ZIRP virus is a nasty virus that affects many people, pension plans, insurance companies, and government budgets.  Central banks have concocted this virus and it has infected many pools of savings.

But there are worse viruses than the ZIRP virus!

The ZIRP virus has mutated into a nastier version – the NIRP virus, otherwise known as the Negative Interest Rate Program virus.  Currently over $7 Trillion in sovereign debt has been infected with this virus and the quantity of infected debt increases daily.

From John Rubino:

“Yesterday Japan’s government borrowed money on terms that require the lenders to pay rather than receive interest for ten years.  And not only was that bond issue snapped up, it was vastly oversubscribed.  This raises a lot of questions, the chief being ‘why would anyone voluntarily commit to something that’s guaranteed to lose money for a decade?’

The short, obvious answer is that the world’s central banks are creating so much excess cash that there seems to be nowhere else for it to go.”

The NIRP virus is similar in symptoms and consequences to the ZIRP virus:

  1. Pension funds are destroyed even more rapidly.
  2. Personal savers will, once infected by the NIRP virus, experience the questionable privilege of loaning money to their favorite bank and, if the bank survives, receiving back less than they “deposited.”
  3. Insurance company earnings are hurt by the NIRP virus. Perhaps rates will rise.
  4. Many governments, which are already in financial trouble, will increasingly underfund their pension plans after they have been infected with the NIRP virus.

There are other consequences besides insolvent private pension plans, retirees unable to earn enough from savings, insurance companies earning too little, and government pension plans becoming insolvent quicker.

From Bill Gross (quoted by Rubino):

“Capitalism does not function well, and profit growth is stunted, if short-term and long-term yields near the zero bound are low and the yield curve inappropriately flat.”

From John Rubino:

“They [life insurance companies] price their policies on the assumption of a mid-single digit positive return on their bond portfolios.  Turn that return negative and all of a sudden the world’s life insurers are either unprofitable or insolvent.  And that’s a big industry.

“Pension funds, meanwhile, operate the same way, taking in and investing contributions against future obligations.  Many US pension plans are already borderline broke and in a NIRP environment they’ll suffer a mass extinction.”

Repeat:   regarding the effects of the ZIRP and NIRP viruses:

  1. Capitalism does not function well.
  2. Life insurance companies become unprofitable or insolvent.
  3. Pension funds: expect mass extinction.
  4. Retirees and future retirees: This is your warning!  Read an article from John Mauldin.

However, an even more destructive mutation of the NIRP virus has been sighted and may infect larger pools of capital:

It is possible the NIRP virus will mutate into the NIR-BAM virus.  The Negative Interest Rate with Bank Account Mandatory virus would require that all cash be deposited into bank accounts that are “taxed” each year with negative interest rates.  In other words, you can’t win and you must play the game.  The NIR-BAM virus is spreading in Europe and Japan, and a few early signs have been seen in the U.S.  An outbreak or epidemic is possible.

CONCLUSIONS: 

The ZIRP virus, NIRP virus, and a potential outbreak of the NIR-BAM virus are destructive to savers, pension plans, insurance companies, economies, and governments who fund pension plans.  These viruses have mutated from QE and central bank diseases, and all the consequences of these diseases and viruses have not yet been fully realized.

Going forward we might expect additional QE, continued ZIRP and NIRP, deflation in paper financial markets, weakened economic activities, a banking system crash, and a renaissance in gold and silver markets as people seek protection from the effects of the ZIRP and NIRP viruses.

Economies could deteriorate further as more capital, people and markets are infected by financial viruses.  Fortunately, gold and silver have no counter-party risk and both are likely to prosper as other investments experience the deadly consequences of the ZIRP and NIRP virus.  Also, gold and silver will help protect savers from the NIR-BAM virus if it becomes an epidemic.

Gold and silver might diminish worries and help people sleep, and thereby improve their immune systems, which will also help protect people from the Zika virus.

Gold and Silver will thrive – as paper assets are increasingly infected by financial viruses.

Gary Christenson

GE Christenson aka Deviant Investor If you would like to be updated on new blog posts, please subscribe to my RSS Feed or e-mail. My books on Amazon

© 2016 Copyright Deviant Investor - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Deviant Investor Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife