Best of the Week
Most Popular
1.Crude Oil Price Trend Forecast 2016 Update - Nadeem_Walayat
2.Will Deutsche Bank Crash The Global Stock Market? - Clif_Droke
3.Gold Price In Excess Of $8000 While US Dollar Collapses - Hubert_Moolman
4.BrExit UK Economic Collapse Evaporates, GDP Forecasts for 2016 and 2017 - Nadeem_Walayat
5.Gold Stocks Massive Price Correction - Zeal_LLC
6.Stock Market Predicts Donald Trump Victory - Austin_Galt
7.Next Financial Crisis Will be Far Worse than 2008/09 - Chris_Vermeulen
8.The Gold To Housing Ratio As A Valuation Indicator - Dan_Amerman
9.GDXJ Gold Stocks - A Diamond in the Rough - Rambus_Chartology
10.Gold Boom! End Game Nears As Central Banks Buying Up Gold Mining Companies! - Jeff_Berwick
Last 7 days
US Presidential Election Forecast 2016 - Trump Riding BrExit Wave into the White House - 25th Sept 16
US Economy GDP Growth Estimates in Free-Fall: FRBNY Nowcast 2.26% Q3, 1.22% Q4 - 24th Sept 16
Gold and Gold Stocks Corrective Action Continues Despite Dovish Federal Reserve - 24th Sept 16
Global Bonds: Why Our Analyst Says Things Just Got "Monumental" - 24th Sept 16
Where Did All the Money Go? - 23rd Sept 16
Pension Shortfalls Could Be 4X To 7X Greater Than Reported - 23rd Sept 16
Gold Unleashed by the Fed - 23rd Sept 16
Gold around U.S Presidential Elections - 23rd Sept 16
Here’s Why Eastern Europe Is Doomed - 23rd Sept 16
Nasdaq NDX 100 Big Cap Tech Breakout ? - 23rd Sept 16
The Implications of the Italian Banking Crisis Could Be Disastrous - 22nd Sept 16
TwinLakes Theme Park Summer Super 6 FREE Return Entry for Real? - 21st Sept 16
Has the Silver Bullet Run Out of Fire Power? - 21st Sept 16
Frack Sand: The Unsung Hero Of The OPEC Oil War - 21st Sept 16
What’s Happening With Gold? - 21st Sept 16
Gold vs. Stocks and Commodities, Pre-FOMC - 20th Sept 16
BrExit UK Inflation CPI, RPI Forecast 2016, 2017 - 20th Sept 16
European banks may be more important than the Fed this week - 20th Sept 16
Gold, Silver, Stocks and Bonds Grand Ascension or Great Collapse? - 20th Sept 16
Mass Psychology in Action; Instead of Selling Gilead it is Time to Take a Closer Look - 20th Sept 16
Hillary - Finally Well Deserved Recognition for Deplorables - 20th Sept 16
Fascist Business Model: Reich Economics - 19th Sept 16
Multiweek Correction in Gold and Silver Markets Continues - 19th Sept 16
Stock Market May Turn Ugly This Week - 19th Sept 16
China Is Digging Itself into a Deeper Hole - 19th Sept 16
Yellen’s Footnote 8 Would Put Interest Rates on Autopilot - 19th Sept 16
Central Bank Digital Currencies: A Revolution in Banking? - 19th Sept 16
UK Government Surrenders to China / France to Build Nuclear Fukushima Plant At Hinkley Point C - 19th Sept 16
Stock Market Correction Already Over? - 18th Sept 16
American Economics - 18th Sept 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Power of the Wave Principle

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