Interest Rates Could Go Deeply Negative

DRIGGS, IDAHO – A new, terrifying idea is gaining traction…

Deeply negative interest rates.

(When I talk about “deeply negative interest rates,” I’m talking about short-term interest rates anywhere from -1% to -5%.)

No nation has dared to try this yet. (Switzerland has the world’s lowest interest rates, currently at -0.75%.) But it’s been “under discussion” in academia and the civil service for a couple of years now.

Hugh Hendry, a former hedge fund manager, is probably the loudest advocate for this.

Hendry is an unconventional thinker and one of my favorite financial analysts to follow. He called for deeply negative rates again last week in a major tweet storm on Twitter…

Paraphrasing his tweet storm…

• The global economy needs a much lower dollar if the feds want to stimulate the economy and stoke investors’ “animal spirits” again.

• The Federal Reserve understands this but is not able to implement it because the rest of the world – especially the big exporting nations – is holding the dollar “hostage” at a high valuation by hoarding dollars and refusing to let the dollar’s exchange rate fall.

• The Fed, therefore, needs to set interest rates at -2%, -3%, or even -5%.

• In essence, by taking rates deeply negative like this, the U.S. government would be telling other countries, “You’re welcome to hoard dollars and exploit our dollar-based system if you want, but we’re going to charge you a 3% user fee for the privilege.”

• This initiative – if done with enough government debt outstanding – would generate a trillion dollars in revenue for the Treasury.

I have two comments on this. (More below)

A Six-Month Alpine Skiing Adventure

Greetings from our Airbnb apartment in the Teton mountains…

Nearly three years ago, my family and I sold all our things and hit the road… to travel around the world. We built our trip around a series of mini-adventures, each which lasted a month or more.

We had an African adventure, for example, where we volunteered at a school for orphans for two months (and went on safari and saw mountain gorillas.)

We also had a Chinese adventure, an American road trip adventure, a Rancho Santana (Nicaragua) adventure, a Baltimore adventure, a European railway adventure, and more.

We’re currently in the mountains of Wyoming on our latest mini-adventure – a six-month alpine skiing adventure in one of the world’s best places for deep powder. We arrived here six weeks ago.

While we wait for the mountain to open for the winter, we’ve been getting ready for a season of skiing.

We’ve rented our skis and boots. We’ve bought ski jackets, face masks, and hand warmers. We have our early bird ski passes. We’ve even watched dozens of YouTube tutorials on skiing for beginners.

It’s been dumping snow here all week. Three snowstorms came through. We’ve had over 20 inches here in town. The ski mountain has had over 70 inches…

The mountain opens in four days. We couldn’t be more excited. It’s like waiting for Christmas…

Finding Community in the Mountains

On our travels around the world, we’ve had a great time, met wonderful people, and learned many new things. We’ve also become a lot closer as a family.

The one thing we’ve been missing is friends and community. Especially friends for our kids. Our kids are 12, 10, and 8. They love playing with other kids.

Kate and I feel friends are an important part of childhood. But our traveling lifestyle has precluded them from having friends. And we’re never going back to Delray Beach, where we lived before our adventure, so…

We hoped by settling in a small town for six months, we might find some community and make some local friends.

This weekend, our kids met a dozen other kids of similar ages from our neighborhood. They were playing at the little community playground on Friday.

They spent all weekend together, playing outside. They built ice castles and snow forts, and had snowball fights.

These other neighborhood kids are homeschooled, too… and they seem really nice…

How the Fed “Rescues” the Dollar

Back to our discussion of deeply negative rates…

First, deeply negative interest rates are probably coming, and we’ll see them in the U.S. within a couple of years…

As we’ve pointed out many times in these Postcards, a cheaper dollar would be very stimulating to business, to the stock market, and to economic growth. It would dramatically ease the burden of the U.S. government’s debt load (by watering down the value of the dollar).

Deeply negative interest rates are how the Fed “rescues” the dollar from its high exchange rate and lowers the value of the dollar.

Having listened to speeches by Fed chair Jay Powell and other Fed governors recently, I get the feeling the Fed is frustrated that interest rates are at zero, and that it has no further agency in the marketplace.

The way things stand, deeply negative interest rates would be the most effective way for the Fed to regain its power over the economy… And to generate a new revenue stream for the Treasury.

Second, I personally will not tolerate my bank charging me negative interest rates.

There’s no way I’d pay my bank to hold a deposit for me. If they charged me negative interest rates, I would immediately remove my funds and invest them in gold, silver, or oil tankers.

I think many others would feel this way, too.

What I mean is, if I’m right and deeply negative interest rates are coming, it’s going to be very bullish for the prices of gold, silver, and other hard assets…

– Tom Dyson

P.S. In addition to deep negative interest rates, Hugh Hendry – the former hedge fund manager I mentioned earlier – says the U.S. government should expand its debt load to 450% of GDP. (It’s currently at 130%.)

P.P.S. The dollar has been range-bound for almost six years. But it could be starting to sniff out negative interest rates? We’ll see…

Like what you’re reading? Send your thoughts to [email protected].

One reader shares his opinion on bitcoin today… others give Tom winter safety advice… and one offers homeschool resources for the Dyson family…

Reader comment: Hi Tom, I suspect that when it became the fashion for banks to pawn fiat upon us all, that many a wise person said, “This stuff will never work.” It did. So long as 1 unit of fiat represented 1 erg of production, it was a fantastic and simple tool, and a wonderfully easy method of exchange.

Too many fools and criminals are messing with the fiat/production ratio and we have the current mess. 1,000 units of fiat representing 1 erg of production and 999 units of gobbledygook. Bitcoin, gold, silver, artwork, stamps, cowry shells, gourds, salt, real estate, etc. are either traditional or new ways of holding and exchanging our wealth. Bitcoin is already well-rooted as a method of holding and exchanging wealth. Its key flaw lies with electricity (turn it off and it’s gone).

So long as your hard-earned wealth is exposed to the crooks behind income tax, inflation, and plain old robbery, man will support endless methods in the desire to keep their wealth. Bitcoin is one of these. Enjoy your skiing.

Reader comment: Hey Dyson family, I hope you are enjoying where you are. To the guy who lives in Anchorage and can’t find gold… Really? I actually laughed out loud when I read that. There are LOTS of placer mines in Alaska. Find a miner or put the word out that you are a cash buyer, and buy placer gold for cash with complete privacy. Make sure you know the purity of what you are buying.

I am also Canadian, born and raised in Central and Northern British Columbia. I drove a logging truck there for half my life, mostly in the mountains. The advice from the person who said put the vehicle in neutral? I have never heard of that, I don’t advise it, and I would never try it. Sounds crazy to me.

Your readers are right. Four-wheel-drive is best, front-wheel-drive is good, and rear-wheel-drive sucks in winter. Chains and weight work well for rear-wheel-drive. Practice putting the chains on before you get stuck. Good tires really matter. Your local tire experts will know what is best there.

I am sure you are getting all kinds of advice, lots of it conflicting. I put in my 2 cents’ worth in the interests of keeping you and your family safe. I know you are all intelligent and highly adaptable, but I think you are out of your element. You can get in over your heads very easily, especially in a high mountain environment. Be prepared. Stay safe.

Reader comment: Hi Tom. I suggest learning to ski on the shortest skis you can find – much shorter than any “expert” will want you to wear. Rather than learning to stop by “snowplowing,” learn to stop by very abruptly turning both skis 90 degrees (either left or right) to the direction of travel, with both skis remaining parallel and right next to each other.

To help mentally focus on where exactly you plan to initiate your very abrupt turn, and also to facilitate turning your skis, try to turn right when your ski boots are, directly over the apex of a tiny little rise, so that the fronts and backs of the skis have very little weight on them, so the skis will turn easily. It also helps to lean uphill to a great extent, as soon as you initiate your turn. I think of trying to kick up as much snow downhill as I can with the tails of my skis.

Using this method, you can stop on a dime. One direction (left or right) will be easier than the other, but be sure you can do it both directions. Once you can stop, you are pretty safe. Get off the bunny slopes as soon as you possibly can. Like, nearly immediately. It’s actually easier to learn to ski on something with at least a bit of a slope.

THEN learn to snowplow. I’ve taught several people how to snow ski and I’ve discovered that they learn much better, much more quickly, and with much less frustration and far fewer crashes. They also have a lot more fun doing it if they have a beer or two in them.

Reader comment: Hi Tom and family. I am a retired physical science teacher and would love to assist your homeschooling in that area. I have put together two science books that would fit great with kids your age. The activities are simple to do with home materials, and are written in everyday language. The books are titled Home and School Science Activity Books, Vol. 1 & 2. I have performed about 50 workshops across the country using these resources.

And finally, last week Tom mentioned three important conditions for a free-market economy… coined by his longtime friend, Porter Stansberry. A reader from Russia responds…

Reader comment: Greetings again from Moscow, Russia! Your being in “flyover” America, where Libertarian values, if not welcome, are at least not shunned, provides the perfect backdrop. Whereas if you were in New York City or San Francisco/Seattle, your neighbors might not share your philosophy, thereby placing you in an uncomfortable minority.

I love your approach to your children’s upbringing – very much akin to Ron Paul’s homeschool program. I am a longtime expat in a country with a 13% flat tax rate and a balanced budget (and hundreds of billions set aside for a rainy day). Having liberty over 87% of one’s income is rare in today’s world. Porter Stansberry, without knowing it, was praising Russia!

While the ruble is not yet “sound,” we all know who the top buyers of gold are in the world at present. So, Russia may have a thing or two to teach the world. And perhaps this also offers insight as to why Russia is the West’s enemy in perpetuity – it plays by a different playbook.

Tom’s note: As always, thanks for your messages! Please keep writing us at [email protected].