Negative Interest Rates

In what kind of a crazy, upside-down financial world must we be living in where people will actually loan their money to a bank or government and willingly accept that less money will be returned to them 10 years later?!

As this article notes, this is the first time in the history of the world that we are seeing such a thing.

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Negative Interest Rates Are Connected to Bible Prophecy

As long as money has been in existence, there have been people willing to loan it out to others for a fee. Our records for interest rates go back 5000 years. The highest recorded interest rates occurred during the Persian Empire 539 B.C., when a brutal taxation system forced people to borrow money at 40 percent. The historic average for interest rates is 4 percent. 

We currently live at a time when interest rates have never been so low. When historians reflect back on 2016, a remarkable statistic likely to be noticed with amazement is how people were willing to accept a negative return on their money. 

Not until 2014, were negative interest rates implemented by a major central bank. The European Central Bank forced rates below the negative milestone by lowering the deposit rate to 0.2 percent in September, 2014. With that being the top rate for money, a number of other European nations turned to negative interest rates. Today, we have over $7 trillion in government-issued debt with negative yields. 

The standard argument for negative rates is the need to fight deflation. Central bankers claim that lower prices cause people to hoard cash. By placing a tax on money, people are be motivated to go shopping. So far, negative rates have failed to increase spending. 

The real reason for negative interest rates is to underwrite support for the massive debt loads of the world’s debtor nations. If rates were to rise to their historic average, the U.S., Japan and most European nations would be unable to fund their federal budgets. 

Japan is in the worst shape. Last year it spent just under 100 trillion yen, but took in hardly 50 trillion yen of revenue. The reality of a nation with a mountain of public debt having reached 300 percent of GDP—means that it cannot afford to pay even a half a percent on money. With Japan hopelessly addicted to deficit spending, soon, negative rates will not be enough to keep them afloat. 

Negative interest rates create a ticking time bomb by increasing the value of existing bonds. As rates go down, the value of the bonds go up. Bonds issued a few years back with a 30-year maturity and a 2 percent coupon rate responded this way: When interest rates dropped to zero, the bond rose in value by 34.7 percent. A bond selling at a face value of $1,000 before the interest rate drop, would have risen to $1,347, for a gain of $347. 

If interest rates where to suddenly normalize, there would be a catastrophic loss for existing government bonds. Japan just had its 30 year bond—hit .47 percent. If rates where to soar to 4 percent, a freshly minted bond with a face value of $1,000, would decline to $300. If rates rose 8 percent, the same bond would only be worth $92. 

Japan is in demographic nightmare; with its working age population set to plummet from 78 million to about 52 million over the next 30 years. It already has 31 million retirees, and that number is projected to hit 36 million by 2060. Bondholders in Japan should be demanding Persian Empire type rates to cover their risks. 

The United States is not far behind Japan. We face the same problem with an aging population, which will cause our debt levels to soar in the coming years. However, unlike Japan, our debt is not self-funded. Our strategy involves the rest of the world buying our Treasury notes. When we get to the point of needed negative interest rates, the world will probably balk at such a deal. 

It is truly amazing to watch the world’s financial system hold together. A meltdown has not occurred because Jesus said the time of His return to rapture His Church would take place at a time of peace and safety. For interest rates to have drifted into negative territory in order to maintain this period of stability—demonstrates how much we are on borrowed time. 

“But of the times and the seasons, brethren, ye have no need that I write unto you. For yourselves know perfectly that the day of the Lord so cometh as a thief in the night. For when they shall say, Peace and safety; then sudden destruction cometh upon them, as travail upon a woman with child; and they shall not escape” (1 Thessalonians 5:1-3).