Article from WeChat public account:Click to invest (ID: deepinsightapp), author: Zhu Ang, from the title figure: Oriental IC
Introduction: Ten years ago, Bill Gross first proposed the new normal (New Normal) view of the global loose Monetary policy will become the new normal in the future. Ten years later, negative interest rates began to become an unprecedented new normal. There are 17 trillion US dollars of negative interest rate bonds in the world, and there are 1 trillion US dollars of negative interest rate corporate bonds.
What happens after negative interest rates become a new normal? What we have seen is the “asset shortage” feature. For those assets with long “long-term”, the valuation has increased significantly. Logically, the cost of capital has dropped to around zero, so we are willing to give higher valuations to long-term growth.
But is there a risk in doing this? Today we talk about the “negative interest rate” is having a profound impact on asset prices.
negative interest rate becoming “new normal”
As seen in various historical documents, the emergence of banks has been a thousand years old, but banks in the economic system really play a role, perhaps to the industrial revolution. In 1750, the global per capita GDP was $180, which was twice as large as 15,000 years ago. But by the middle of the 20th century, it reached $6,600 in a short period of 250 years, a 37-fold increase.
The core reason behind this is the leverage of banks in the financial system. People deposit money in the bank to get interest, and then the bank lends money to the producer with higher interest rates. And as long as the return on capital of the producer exceeds the interest cost of the bank, this way of adding leverage is accounted for. Whole bank bodyIt has brought about a high-speed leverage effect for the development of social economy.
From the first day of knowing the bank, we think it is natural to deposit money into the bank to get interest. From the first lesson of economics, we also learned how banks can earn the middle price difference by absorbing deposits and issuing loans, and promoting economic development. But today, there are many banks around the world that don’t pay you a penny interest, but they also charge the depositors. Money deposit banks will become less and less valuable, and this has never been seen in history.
Data Source: JP Morgan Report
According to Bloomberg’s September 4th report, the world’s nominal bond yields are negatively over 17 trillion. If we take inflation into account, the figure is 35.7 trillion. In the United States, there are more than 9 trillion government bond government bond yields below CPI.
The reason behind negative interest rates is that global central banks are stimulating the economy through quantitative easing. Everyone is reluctant to accept the economic contraction brought about by monetary tightening. We can see from the Fed’s regulation of the balance sheet. After tightening the balance sheet for a while, the Fed continued to cut interest rates, although the space for interest rate cuts has been limited. From the chart below, we can see that after a brief contraction of liquidity, the global central bank will enter a cycle of monetary easing.