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Updated 03:30 19/08/19

Negative rates are a bomb that will explode

By Adam Pike, News Editor

10 Jun 2016

Since the 2008 economic crisis central banks have been successful in keeping the fiat financial system alive. Rather than dealing with the structural problems in our current system, policymakers have doubled down on failed policies. Central banks across the globe have slashed interest rates and many have printed trillions of currency units to purchase government securities.

By creating artificial demand central banks have created one of the biggest financial bubbles in history. Yields on government debt are now trading at 500 years lows. Many in the industry are forecasting the bond market is like a supernova which one day will explode.

Bond manager, Bill Gross, has argued the global economy is at the end of a multi decade cycle of expanding credit which cannot continue expanding. Negative rates have been successful in keeping government, corporations and households solvent but, rather than stimulating growth, low rates have caused asset bubbles as investors search for yield. Gross is recommending clients should look to protect their capital rather than seeking returns.

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