Great Britain lost their AAA rating last week and joined the club of “non AAA” insolvents. To be honest with you, this took me a bit by surprise. Not because they were downgraded but because they were AAA rated in the first place! I knew that they were AAA rated “officially” but I guess my subconscious got the best of me because if asked I would have told you they were not. Britain? AAA? There is no comedy club on the planet that could have passed this off with a straight face.
While on the subject of AAA ratings, there are a few left like Germany and The Netherlands but I ask, is there really, truly… anything paper that deserves a “triple A” rating? Is there anything, anywhere on “paper” that cannot default? This goes for bonds, bank accounts and of course the currencies themselves. Can a barrel of oil “default”? A bushel of wheat? Gold or silver? Of course not, but these are, in today’s upside down backwards world, considered “risk assets.” How whacked out have we become? Sovereign governments that just 20 years ago would have been taken out back to the financial “disciplinary woodshed” are considered AAA rated or close to it.
Forget about the “AAA” ratings being fake, what exactly can you do with your money if you are a good little sheep and stay within the “box?” There are no bonds anywhere on the planet that compensate you for current inflation. When you add in and consider future inflation, the current “leak” of wealth annually will become a sudden event that discounts EVERYTHING. The “discounting” process is THE reason that governments are manipulating markets. They have lowered interest rates beyond any reasonable level (and been there for many years) so in order to justify this, “markets” have to reflect this.
It is important to understand that not only is the “quality” false in the bond markets, so is the “math.” When you look at inflation, bonds don’t make any sense. Forget about the reality that inflation is running at 8-10%, use the bogus mainstream inflation rates we are spoon fed daily. In what world does it make sense to lend your money for year at 1/4% when “official” inflation is running at 2%? How does it make any sense to lend your money for 10 years at 2%? Are bond investors in the business of locking in guaranteed losses year after year? Is this how the credit markets worked all these years? Is this normal? Or is it the “new normal?”
Maybe it is, but you must understand that the math doesn’t work and will do nothing other than destroy capital… at a faster and faster pace as the credit markets get larger and the deadbeats borrow more and more. It doesn’t matter that the “sheep” are not the buyers anymore (they are through bond funds), capital is getting destroyed. It doesn’t matter who the “lender” is, the Fed, ECB, BOE or BOJ, it will still be destroyed. Mathematically and logically it makes no sense. Morally and ethically it makes no sense. The ONLY area that it makes any sense at all is politically. Negative interest rates can only make sense in order to prolong the “wrong” and to cover your tracks. “Tracks” being past ill advised policy, theft and fraud.
As far as Britain is concerned, they were not AAA in the first place no matter how warped your thought process is.. They are (as is the rest of the world) embarking on further QE. They will issue more debt to lower rates further, this will increase inflation and water down the existing stock of paper. In what world would any sane investor choose this path? As far as I see it, the investment “options” available to those with any sanity left has been narrowed down to a mere handful and no matter what you choose it weighs more than paper with lots and lots of “zeroes” on it.