To earn higher returns, you’re going to have to accept more volatility in some form or another. The euro area, Switzerland, Denmark, Sweden, and other economies have allowed interest rates to go slightly below zero, which has been possible because taking out cash in large quantities is inconvenient and costly (for example, storage and insurance fees). While the U.S. has been attempting to combat the economic shock from the virus through different monetary policy measures, they are experimenting with a dangerous strategy only seen before in Europe and Japan involving negative interest rates. Cash has the same purchasing power as bank deposits, but at zero nominal interest. When setting a negative interest rate on e-money, the central bank would let the conversion rate of cash in terms of e-money depreciate at the same rate as the negative interest rate on e-money. Featuring views and opinions written by market professionals, not staff journalists.Continuing to navigate through the uncharted waters in the investing world and focusing primarily on exploiting various trigger points that could lead to the next wave higher in gold, I want to bring to your attention a rare development that occurred last week. Its introduction would reconfirm the central bank’s commitment to the inflation target, rather than raise doubts about it.Still, implementing such a system is not without challenges. The only problem is that no economic growth is happening due to the shutdown meaning negative rates could be here to stay. If I had to guess (and this is only a wild guess), the only way we would see negative rates would be during the next recession, whenever that may be. Considered one of the boldest monetary experiments of the 21st century, negative interest rates were adopted in Europe and Japan after policy makers realized that they needed extreme measur. To have more stability, you’re going to have to accept lower returns.This risk-reward relationship has always been in place but the returns paid for stability are drastically lower than they’ve been in the past.

First of all, it’s impossible to know exactly what to make of negative interest rates in government bonds around the globe for the simple fact that it’s never happened before.

Every month you'll receive 3-4 book suggestions--chosen by hand from more than 1,000 books. On a country-by-country level, green bonds are most common in the U.S., China, and France. Bonds keep you in business even if they don’t provide high returns as they have in the past.There are no easy solutions. Please try again later. The laws of time preference tell us bullion banks must urgently cover their short bullion positions in anticipation of a dollar rate-induced permanent backwardation for gold, silver and across all commodities. This would jolt lending, boost demand, and stimulate the economy.When cash is available, however, cutting rates significantly into negative territory becomes impossible. Germany issued its first multi-billion dollar government green bonds in just 2019. These include private placements, covered bonds, and Green private placements occur when the sale of bonds are made to private investors, rather than through public offerings. Under normal circumstances those banks receive a small rate of interest in return. Oops.

You can see a much smoother ride in dividends. Without cash, depositors would have to pay the negative interest rate to keep their money with the bank, making consumption and investment more attractive. Like a dam, once too many cracks keep forming, eventually the levee breaks and there is no stopping what happens next. Helicopters on the Horizon The Fed still has its short-term interest rate pegged at a range of 2.00% to 2.25%. But eventually, yield wins out and long-term bond investors will see paltry returns on their capital.I wish investors could earn easy 5-6% risk-free rates of return but it appears those days are behind us. Oops. Anyone who tells you they know how this will transpire is a maniac.Predicting interest rate moves is notoriously difficult but I’m increasingly coming around to the idea that it’s only a matter of time until the U.S. joins much of the developed world with negative nominal interest rates in government bonds. These policies have helped boost demand, but they cannot fully make up for lost policy space when interest rates are very low.One option to break through the zero lower bound would be to phase out cash.

Oops. Cash continues to play a significant role in payments in many countries. At that point, it’s anybody’s guess as to how things will shake out going forward.You’re Grounded: The COVID-19 Effect on Global Flight CapacityThe Pandemic Economy: Which Stocks are Weathering the Storm?How COVID-19 Has Impacted Black-White Financial InequalityThe Impact of COVID-19 Shutdowns on the Gold Supply ChainVisualizing the Size of Amazon, the World’s Most Valuable RetailerVisualizing the Growth of COVID-19 in the U.S., Organized by State Peak DateWith ESG investing outperforming benchmarks, could green bonds be next in line?

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