Negative rates: investors go through looking glass to sub-zero yields

Roughly one-quarter of the global debt market is trading at levels once thought improbable

Tommy Stubbington

This article was originally published as part of the ‘Negative Yields’ series on 13 August 2019.

Making an investment that is guaranteed to lose money sounds like something that would cost you your job. But in bond markets, it has become a fact of life.

Bonds worth $15tn — roughly a quarter of the debt issued by governments and companies around the world — are currently trading with negative yields. That means prices are so high that investors are certain to get back less than they paid, via interest and principal, if they hold the bond to maturity. They are, in effect, paying someone to look after their money.

The spread of negative-yielding debt has raised profound questions about the extraordinary lengths central banks have gone to in a bid to revive the economy over the past decade. At the same time, bond markets’ journey through the looking glass has befuddled many investors.

“Free money — it’s sort of an insane concept,” said David Hoffman, a bond portfolio manager at Brandywine Global in Philadelphia. “Having grown up in a very different world it’s challenging to navigate this.”

Negative interest rates first appeared in Japanese money markets two decades ago. Since the financial crisis, they have engulfed government bond markets in Japan, Sweden, Switzerland, Denmark and the eurozone — all economies grappling with low inflation where the central bank has set interest rates below zero. Investors thirsty for yield have been forced to look elsewhere, ensuring the spread of sub-zero yields and dragging down borrowing costs everywhere.

As a result, oddities now abound. Danish lender Jyske Bank last week issued a 10-year mortgage bond at an interest rate of minus 0.5 per cent, meaning homeowners are being paid to borrow. Meanwhile, Swiss bank UBS is planning to charge its super-rich clients for holding on to cash.

Even large chunks of corporate bond markets now trade at sub-zero yields, including parts of the junk bond market (making a mockery of its “high yield” label). Emerging markets have not been immune either. Bonds issued by Poland, the Czech Republic and Hungary have joined the club.

Investors are now eyeing what could become the negative yield revolution’s next frontier — the biggest bond market of all.

“When the world economy next goes into hibernation, US Treasuries — the ultimate safe haven apart from gold — are unlikely to be an exception,” said Joachim Fels, global economic adviser at Pimco, the bond investing giant based in Newport Beach, California. “And if the trade war keeps escalating, we may get there faster than you think.”

Investors are grudgingly adjusting. After all, fund managers are used to operating in a universe where all interest rates are relative, and that goes for negative ones as well. If a central bank sets a base rate of minus 0.4 per cent, a yield of zero on an ultra-safe government bond might seem attractive.

“Zero has just become another number — at least for markets if not in the real economy,” said Myles Bradshaw, head of global aggregate fixed income at Amundi, one of Europe’s biggest fund managers. “You can’t get a risk free rate above zero, and everything else is relative.”

Then there is subdued inflation, which makes fixed-income assets more attractive. Indeed, while negative nominal yields might seem mind-bendingly novel, negative “real” yields, adjusted for price rises, are relatively commonplace.

Jim Leaviss, head of retail fixed interest at M&G Investments in London, recalls saving his pocket money to buy Lego sets in the 1970s in a Post Office account which offered an interest rate of about 10 per cent. “Inflation was sometimes much higher than that, so it’s just an illusion your money is growing,” Mr Leaviss noted.

If central banks keep cutting rates — as the European Central Bank is expected to do in September — bond yields look likely to follow them lower. The old theory that zero would act as a floor for interest rates has been shattered. However, most analysts feel that there is still some kind of limit — just lower than they had thought before.

“How low you can set rates depends on at what point you start being counterproductive,” said Adam Posen, a former Bank of England policymaker who is now president of the Peterson Institute for International Economics.

There are several reasons to think that point might be close — or even that it has arrived already in economies like Switzerland, where rates are currently at minus 0.75 per cent. At some point, savers will prefer to lock banknotes away in a vault rather than submit to punitive, negative rates, Mr Posen argues. That means investors may not be able to ride the wave of negative yields much further. Although bond yields have been at historically low levels for years, fund managers have more than made up for lack of yield with hefty price gains on their portfolios as bonds rallied. Once the price gains fizzle out, they will be left contemplating an exceptionally bleak bond investing landscape. “I’m worried you become dependent on lower and lower rates,” said Mr Hoffman. “It feels like the bond market is suffering some kind of panic attack. But what happens when rates go up? It’s a dangerous game.”

Wanted: A Global Green New Deal

To live within our planetary means, we will have to change many aspects of how we live – how we organize our economies, our cities, and our transportation, energy, housing, and food systems. The good news is that most of the world now recognizes this; the bad news is that its largest polluter does not.

Joseph E. Stiglitz

stiglitz260_Marcos del MazoLightRocket via Getty Images_sosprotestposter

NEW YORK – Nearly a quarter-century ago, I was a lead author on “Climate Change 1995 – A Report by the Intergovernmental Panel on Climate Change.” In that report, we made one big mistake: we should have sounded the alarm louder.

But we lacked the overwhelming evidence that we have today concerning the pace and consequences of climate change, so we didn’t fully anticipate the extreme weather events that have had such devastating effects on our planet and on our lives and property.

Back then, we thought the impact of climate change would be focused on the world’s tropical countries. The United States, the United Kingdom, Canada, and northern Europe might actually benefit. The beaches in places like Maine and Nova Scotia might actually become swimmable.

Who would have anticipated that the US would be among the major losers, with damage in 2017 alone – from hurricanes, wildfires, floods, and the consequences of heat waves and severe frosts – amounting to about 2% of GDP, with cumulative costs since 1980 totaling $1.6 trillion (in inflation-adjusted dollars). And who would have anticipated the rapidity with which the Greenlandic and Antarctic ice caps would melt, or that glaciers around the world would retreat so rapidly? We knew that sea levels would eventually rise, but so rapidly?

We now know that we have no choice but to live within our planetary boundaries – nature is not always forgiving – and that we have not been doing so. The enormous increases in standards of living over the last two and half centuries have been based on taming energy, and – especially over the last century – that has meant using fossil fuels, taking carbon stored deep in the Earth and burning it, spewing carbon dioxide into the atmosphere at a far faster pace than natural processes can remove it. The consequences of this profligacy are now upon us.

The evidence in support of an overpowering response – something with all the urgency and scope evoked by US President Franklin D. Roosevelt’s New Deal of the 1930s, or wartime mobilization – is overwhelming. We will have to change many aspects of how we live – how we organize our economies, our cities, and our transportation, energy, housing, and food systems.

The good news is that most of the world now recognizes this. The incoming president of the European Commission, Ursula von der Leyen, has committed Europe to achieving carbon neutrality by 2050. She has also committed Europe to a fundamental change in the global economic architecture: the imposition of cross-border taxes on goods produced by any country not doing its part to preserve the planet.

There is more good news: we can well afford these changes. The “Report of the High-Level Commission on Carbon Prices,” which I chaired with Nicholas Stern of the London School of Economics, concluded that the goal, enshrined in the 2015 Paris climate agreement, of limiting global warming to 1.5-2ºC above pre-industrial levels could be achieved with a tax of only around $100 per ton of carbon. That would imply a 2-3% increase in energy prices – well below what the world has absorbed on earlier occasions.

The costs are made even more manageable by the enormous advances made in renewable energy in recent years, which have made it competitive with fossil fuels in most arenas. Indeed, a New Deal-like commitment to the green transition is likely to unleash an enormous burst of innovative energy. That kind of energy is going to be good for the economy.

The irony is that today, we worry about how artificial intelligence and robotization will lead to job losses, or about secular stagnation (persistent unemployment even at zero interest rates) or about what former US Federal Reserve Chair Ben Bernanke called a “global saving glut.” Yet, even as we fret about surpluses of labor and capital, some bemoan that we can’t afford the green transition.

The absurdity of this position should be obvious. At the very least, those who hold it – sometimes even serious economists and financiers who should know better – are demonstrating that they have lost confidence in the market system’s ability to address our real economic and social needs. And in some ways, that lack of confidence is deserved: financial markets react to short-term cues, and the long-term economic costs of environmental degradation have not been priced in.

As I explain in a forthcoming paper in the European Economic Review, carbon pricing is necessary but insufficient: we will need large amounts of public and private investment and regulations to guide the economy and stimulate innovation. To finance these investments, we will need more public green investment banks and more capital for existing development banks.

Current institutions, including the World Bank and the European Investment Bank, may be doing a good job, but they simply don’t have the resources that a green transition requires. The more investment there is, and the better the regulations are, the lower the carbon price required to achieve the Paris goals.

France’s “yellow vest” (gilets jaunes) movement has drawn attention to the necessity of being attentive to the green transition’s distributive consequences. We are now paying a high political price for having ignored the distributive consequences of globalization and financialization. We should have learned that lesson. But if we manage the green transition well, the overwhelming majority of citizens around the world can be better off.

And there are two dimensions of distribution that too often get short shrift in discussions concerning sustainability and the green transition: between generations and between developing and developed countries. Politicians who champion low deficits and austerity always talk about the costs imposed on future generations. But the costs imposed on future generations by climate change and rising sea levels are an order of magnitude greater. Young people around the world recognize this, and now they are refusing to sit still for it.

Rightly so. Even the way governments go about making decisions systematically discriminates against future generations. To see this, one need look no further than Juliana v. United States, the ongoing lawsuit brought by 21 young Americans against the US government (in which I am an expert witness). The US government, for example, uses cost-benefit analysis to assess the desirability of regulations and investments; but in doing so, it discounts future benefits and costs – those borne by our children and grandchildren.

The Trump administration has essentially said we should ignore future generations completely: that it is worth spending only $3.25 today to avoid a cost of $100 in 50 years. Trump’s calculus seeks to make America great today, without regard to the future – which is precisely how we got into our current predicament. And yet the US remains the world’s largest polluter, by far, on a per capita basis (China, with more than four times as many people, is the largest polluter in absolute terms).

We are already living beyond our planetary means; imagine the burden on the planet if and as developing and emerging countries close the income gap between themselves and today’s advanced economies. We cannot ask these countries to sacrifice their living standards so that the advanced economies can continue their profligate ways.

With its commitment to achieving carbon neutrality by 2050, Europe is facing up to the moral as well as economic implications of climate change. Many US businesses, cities, and states are doing likewise. What is now needed is a commitment on the part of the US government.

Joseph E. Stiglitz, University Professor at Columbia University, is the co-winner of the 2001 Nobel Memorial Prize, former chairman of the President’s Council of Economic Advisers, and former Chief Economist of the World Bank. His most recent book is People, Power, and Profits: Progressive Capitalism for an Age of Discontent.

Protests in Chile and the Government’s Response

The country is struggling to decide what role the armed forces should play in domestic affairs.

By Allison Fedirka

Earlier this week, Chilean President Sebastian Pinera issued an apology for not foreseeing the recent unrest that followed a hike in metro fares and introduced a series of social measures in an effort to subdue protests that have been raging for nearly a week. But prior to the announcement, the government also introduced a military-enforced curfew and declared a state of emergency. The government’s swift and heavy-handed response to the protests, which included a heavy military presence to quell the unrest, just added more fuel to the fire. For many, seeing troops and tanks on the streets of Chile’s major cities provoked flashbacks of the brutal dictatorship of Augusto Pinochet. The situation has raised a key issue that many South American countries are grappling with: What role should the armed forces play in a post-dictatorship country?
How It Began
An increase in metro fares on Oct. 14 was the initial spark for Chile’s protests. The price of one metro fare during peak hours in Santiago went up by 30 pesos (about 4 U.S. cents) to 830 pesos. (For reference, the new monthly minimum wage introduced as part of the relief package following the protests is 350,000 pesos, about $485.) The price hike would affect millions – on an average day, just one line on Santiago’s transit system transports 1 million passengers. As is often the case in Chile, students led the charge, organizing protests and voicing their disapproval of the move, and things quickly snowballed from there. By the end of the week, protesters were demanding changes to basic services and decreases in the cost of living, and the demonstrations spread to major cities nationwide. On Oct. 18, Pinera declared a state of emergency and deployed the military to try to clear the streets; the next day, he repealed the metro fare raise, but the protests continued. The government engaged in dialogue with whoever was willing to talk to try to resolve the dispute and ultimately had to introduce a package of reforms to appease the protesters.


Thus, protests that began over transportation fees ended up being about general economic conditions and inequality in the country. Many believed that Chile had a relatively well-performing economy, and so were surprised at the level of unrest over the past week. But it shouldn’t be a surprise. As many nations around the world see signs of economic downturn on the horizon, Chile too is feeling the pinch. Its economy is particularly sensitive to a global downturn and the U.S.-China trade war. Exports account for roughly 29 percent of Chile’s gross domestic product, and China and the U.S. are the country’s top two trade partners. China has been a major market for Chilean copper (among other things), and as the Chinese economy slows and consumption declines, the ripple effects will make their way to Chile. The price of copper has already declined this year, reflecting lower Chinese demand. The economies of Chile’s other major trade partners such as Japan and Brazil have also seen low growth and stagnant demand in recent years. These impacts have slowly accumulated over the past couple of years, with one consequence being that higher transport fees or electricity tariffs are no longer as tolerable as before.

The roots of Chile’s inequality can be attributed to its colonial past. As a colony, Chile had captaincy status, meaning there was a premium placed on security over trade and the colonial government had more autonomy over domestic affairs. But wealth in the colony was still concentrated in the elite – a common condition among Spanish colonies. This has greatly affected the country’s social structure and economic development to this day. According to the Organization for Economic Cooperation and Development’s most recent figures, the wealthiest segment of society earns 25 times more than the poorest. While inequality in Chile may not have seemed as pronounced as it was in other South American countries, these longstanding conditions, the current global economy and Chile’s history of strong civic activism led to the unrest we’re seeing today.

The most striking and geopolitically significant element of the Chilean protests has been the government’s response. Protests – involving vandalism, arson and street blockades – erupted in at least 10 of the country’s 16 regions, with the largest easily numbering in the thousands, if not tens of thousands. From the government’s perspective, the situation necessitated a strong response. Pinera charged the military (supported by other security forces like the Carabineros) with restoring public order, but scenes of tanks rolling down the streets and anecdotal reports of live gun fire and people in military uniform physically restraining or assaulting civilians drew comparisons to dark times in Chile’s past. Much of the population lived through the Pinochet era (1973-1990) and doesn’t want to see the country go down the same path again. Younger generations that didn’t live through those times themselves have been taught the importance of civil liberties and the right to protest by those who did.
A Complicated History
But Pinera nonetheless turned to the military to try to calm the unrest, at a time when the government is trying to reform its relationship with the armed forces. In fact, many Latin American countries, having experienced brutal military dictatorships in the latter half of the 20th century, are now reconsidering the role of the military in domestic affairs. During these dictatorships, disappearances, media censorship, restricted movement and suppression of civil liberties were common. But as democracy took hold across the region, the armed forces in many South American countries were marginalized. Governments sought to reduce the military’s influence in public affairs, and the general public adopted an increasingly unfavorable view of the armed forces. As these countries developed into more established democracies, the question resurfaced of when it’s appropriate to use military force, and to what extent.

The answer is complicated by the fact that most South American countries have minimal need for military forces as they are historically used, in warfare and foreign deployments. In most countries around the world, the purpose of the military is to protect the homeland from foreign threats or to protect the nation’s interests abroad. But due to the rugged terrain in much of South America, interstate warfare is rare and difficult to carry out, especially compared to other regions like Europe. The continent’s location in the Southern Hemisphere means it also faces minimal military threats from outside the continent. These countries still need to defend themselves, of course, but the threats they face often come from domestic actors or foreign elements that have already infiltrated the country. They primarily include non-state actors, such as organized crime groups that can operate across borders and rely on cooperation from local organizations for daily operations like crop cultivation, drug production and trafficking. Local police forces are ill-equipped to handle such threats, and even national police forces can be ineffective. Given these constraints, the idea of relying on the military, which is often better trained and funded than police forces, to defend against these threats sounds reasonable. This puts the government and military in a bit of a predicament. On the one hand, many of these governments want to find a way to effectively use the military and to modernize relations with the armed forces. On the other hand, the public and the governments themselves are wary of the military’s involvement in domestic affairs.

Chile’s military modernization efforts come at a time when the institution is going through a sort of transition. The first post-Pinochet generation is now rising in the upper ranks of the armed forces. Nearly all of the country’s current top brass – rear admirals and brigadier generals – started their careers toward the end of the Pinochet regime and will be retiring in the next few years, so the ideas and practices of that era will be eliminated. The modernization efforts will be focused on professionalizing the military and changing its funding structure. Until July, for example, the military had received a cut of the profits from state-owned copper company Codelco. After years of debate, Chile finally passed a law ending this financing. Other countries in the region are also going through changes in relations between the government and military, particularly with respect to operations. Peru is a major location for cocaine production and the main groups in control of drug activities have past links with insurgent groups. The government now uses the military to crack down on narco-terrorists. Argentina is not a producing country, but rather a transit country. As such, the government is starting to experiment with using the military to support the gendarmerie in securing the country’s borders, primarily from drug organizations. In Brazil, the military has recently been used to help control the country’s vast territory and increase government presence in some of its more far-flung regions. It supported anti-drug operations in Rio de Janeiro in 2018, helped manage the influx of Venezuelan migrants into Roraima and helped contain the fires in the Amazon this past summer. In all of these cases, the governments are looking to the armed forces to help solve security problems that arguably fall outside the traditional role of the armed forces, which includes fighting wars and dealing with foreign threats.

Chile’s recent bout of unrest appears to be declining, but the changes Pinera introduced this week address only the economic grievances of the protesters, while the underlying question of the role of the country’s armed forces remains unanswered. Pinera raised the basic pension by 20 percent, backpedaled on a 9.2 percent hike in electricity tariffs, increased the minimum wage, introduced more taxes on high-income earners and introduced measures to improve the accessibility of health care and medicine. And yet, he didn’t pull back security forces, saying he needed to guarantee that the country remains peaceful. Chile, like many in the region, doesn’t have a clear vision of what role its armed forces should play. So, it uses an ad hoc approach, deploying troops when the government deems it necessary. It may develop a clearer path forward in the future, but for now, we have only a vague indication of what that might look like.

Gold Seasonality Turns Positive – Prepare For A Big January

by John Rubino

The gold market has a saying — “sell in May and go away” – for a good reason: Asians like to give gold jewelry as wedding gifts and tend to hold most of their weddings in the Spring.

Asian jewelers therefore have to load up on inventory – in the form of gold bullion – in winter.

This demand cycle puts upward pressure on prices in January and downward pressure in late Spring when Asian buying dries up.

But not this year. Starting in May, when history says gold should be weak and gold bugs who know what’s good for them should be off doing other things, gold jumped from $1,250 to $1,500, where it currently sits.

gold seasonality central bank gold demand

Now the question becomes: Is the “buy in December” part of the cycle still valid or did the unusual Summer action invalidate the thesis?

This matters because a typical January spike from current levels would take gold to within shouting distance of its all-time high of $1,900 – putting the US in the (large and growing) club of countries where gold is at record highs.

Which is the same thing as asking whether the dollar will fall relative to gold as the euro, pound and C$ did recently.

The other big question is why seasonality didn’t dominate the action this year.

What other factor or factors are at work to send gold higher when Asians aren’t buying?

One possible answer is that central banks, rightly losing faith in their own ability to manage their currencies, are shifting their reserves to gold.

This widely-circulated chart shows German central bank gold rising for the first time in this century.

German gold central bank gold demand

Which means a couple of things.

First, Germany’s central bank, the Bundesbank, is widely seen as an island of sanity in a sea of monetary crazy, which makes it influential.

News that it is now a buyer of gold rather than a seller might influence the dimmer bulbs running other central banks, making government buying a feature of the gold market for years to come.

Second, since the source of the Summer action had nothing to do with Asian jewelry demand, there’s no reason to expect Asia’s typical January buying to depart from past patterns.

Taken together, rising central bank gold buying and typically-strong Asian demand could make January just as much fun as this Summer was.

Federal Reserve steams back into the US Treasury bill market

Central bank’s short-term debt holdings soar as it tries to head off liquidity Crunch

Colby Smith in New York

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The Federal Reserve could soon own 12 per cent of the market for US Treasury bills, according to Oxford Economics, as it attempts to see off a repeat of the cash crunch that sent short-term lending rates spiralling in September.

Earlier this month the Fed announced it would buy $60bn of Treasury bills — government debt securities which mature in one year or less — each month until the end of the second quarter of next year.

When the Fed buys bills to expand its balance sheet, it credits commercial banks with an equal amount of reserves. The intervention aims to replenish those reserves to a level where even a spike in demand for cash will not send short-term borrowing costs significantly higher.

The Fed has begun this process in earnest, so far hoovering up more than $20bn of Treasury bills.

In order to get reserves back to the roughly $1.5tn level it says is adequate for the system to run smoothly by early 2020, the Fed needs to buy approximately $300bn of the shorter-dated debt.

At that pace, the Fed will end up owning about 12 per cent of the entire bill market by early next year, according to Oxford Economics.

Today it owns less than 1 per cent.

During the global financial crisis a decade ago, the Fed’s ownership of Treasury bills plummeted as it begun buying up longer-dated debt as part of its quantitative easing programmes designed to stimulate the economy.

But the Fed may not have it all its own way. Given the scale of its bill-buying programme, strategists have warned it could have trouble finding enough sellers willing to part with their bills.

That shortfall has not cropped up yet, though. In fact, the operations to date have seen sellers offer up far more than what the Fed has been willing to buy.

The 5 Craziest Ideas from the Democratic Primary Freak Show

by Doug Casey

nternational Man: Elizabeth Warren proposed an annual tax on a person’s wealth. What do you make of this?

Doug Casey: When you tax something, you discourage it. If Elizabeth Warren wants to tax people’s wealth, that’s going to encourage people to hide their wealth. And discourage them from getting wealthy. So, it’s poison from an economic point of view.

But it’s even worse from an ethical or spiritual point of view. It sends a signal that wealth is evil.

That it has to be kept under control and limited. That a political priesthood should determine how much is enough and who should get it. It’s especially perverse in that people like Warren act like they have the moral high ground. When in fact, they’re in the moral gutter.

She says she’s pushing it to keep people from getting "too wealthy," which is actually insane.

It’s exactly the opposite of what we should want. We want to encourage everybody to become very wealthy so that everybody’s a capitalist. Worse, the proceeds of a wealth tax go to the state—the worst place it can go. It will increase the size of government, and the capital will be dissipated, at best. Perhaps it will be redistributed to a well-connected crony capitalist or used to further corrupt the poor with handouts. Bad news all around.
The hatred of the rich is, however, somewhat understandable.

Why? Because so many of them became incredibly wealthy by becoming cronies and gaming the political system. Most of their money was gained through theft, not production.

The way to prevent that is to get the state out of the economy.

Not make the state and its cronies bigger and stronger by directing more tax revenues to it.

But there are other consequences of a wealth tax.

Every American is going to have to file a balance sheet with the government, not just an income statement the way we currently do for the IRS.

They’ll know, under penalty of perjury, not just what we earn, but what we have.

A wealth tax is extremely anti-freedom.

Plus, it will require the hiring of thousands more IRS agents, just the opposite of what we want to do.

We want to abolish the IRS, not make it larger.

A wealth tax is a completely insane idea, from absolutely every point of view.

It has no positives.

International Man: Initially, the government would hit only the rich with the wealth tax. But that’s precisely how proponents sold the federal income tax to the American people, and look at the monstrosity it has grown into today. Do you think the same thing could happen if someone like Warren institutes a wealth tax?

Doug Casey: Unquestionably. The federal income tax started out in 1913, at 1% on net personal incomes above $3,000 (about $50,000 in today’s dollars) and 7% on incomes above $500,000 (about $8 million today).

International Man: Cory Booker wants reparations for descendants of slavery. What are your thoughts on this?

Doug Casey: Another completely insane idea. It’s guaranteed to create much more antagonism between the races—where just by virtue of being black, you receive lots of money from white people.

Even though no American blacks have ever been slaves.

Nor their parents. In fact, no black person in the country today has anything closer than a great-great-grandparent who was a slave. The idea is criminally insane. It’s all about theft based on race. So it’ll only create more antagonism between whites and blacks. In addition to opening up questions like, "What percentage black do you have to be?" 100%? 50%? A quarter? An eighth?

Would you lie like Elizabeth Warren to capture a benefit based on your possible racial background?

This opens up a Pandora’s box filled with race hatred, corruption, and millions of lawsuits

Entirely apart from that—although it’s perverse—blacks in the United States should be happy their ancestors were stolen from Africa. As bad as things were for slaves in this country, they would have been even worse off in Africa—where they would also have been slaves. Africa is full of de facto slavery even today, even though it was legally—cosmetically—abolished in 1982 in the last country to have it, Mauretania,. And their descendants would have been much, much worse off. They would have had none of the myriad advantages of being in a Western country.

Actually, most of the blacks who were stolen from Africa went to Brazil and the Caribbean. I believe the number is about 80%. So does Booker mean that the Caribbean islands, which are today mostly black, and Brazil, which is over 50% black, should get reparations too?

He makes the argument that American prosperity was built on black slavery. This is historically not just false, but the opposite of the truth. Slavery discouraged industrialization of the South, keeping it a century behind the North in technology. The slaves were an actual detriment to development. There was no "surplus value" created to be distributed to anybody 150 years later.

Booker is a slick race hustler with a criminal mentality, from a wealthy family. He’s in the tradition of Jesse Jackson and Al Sharpton. It’s a sign of how degraded the US has become that he’s taken seriously in any way.

International Man: Andrew Yang wants to give every adult an unconditional $1,000 a month—in other words, a universal basic income. Yang calls this a "freedom dividend." But the government is not a profit-seeking corporation, and it can’t pay a "dividend." What is really going on here?

Doug Casey: A freedom dividend? A dividend can be paid to an investor only if capital is deployed in a way that it creates a profit. Who are the investors here? Where is the capital they saved to "invest"? Where is the profit the government makes to distribute? What does any of this have to do with "freedom"? It’s a goofy idea based on theft.

There’s two ways that money can be generated to give everybody $12,000 per year. Either steal it from people who actually produce it or have the Federal Reserve print it up and give it to everybody—in which case you’ll destroy the currency.

The fact is that when there’s any kind of an economic transaction, there has to be an exchange, you have to give something to get something. Where is the exchange here? It’s pure institutionalized theft.

Most of the people getting the $12,000 will simply stop working at their minimum wage jobs and just fritter it away. Many might use it for a down payment on a $50,000 pickup truck.

Which might be smart, because next year the same truck might cost $70,000 due to all the extra money creation. It’s another criminally insane idea. Yang’s main qualification to be president is that he rides a skateboard reasonably well—better than Beto for sure.

International Man: Robert O’Rourke—who prefers to be called "Beto" to give himself a more Hispanic-sounding name—has openly embraced gun confiscation. What are the implications here?

Doug Casey: Once again, this is just more overt theft to increase social engineering. If you can take somebody’s gun away from them, why stop there? You should be able to take their car away from them too. Cars are much more deadly than guns.

It’s not just a question of the Second Amendment, either. The Constitution in general has been interpreted out of existence—except for meaningless administrative niceties like who gets to cast a tie-breaking vote in the Senate or the order of succession if the president dies. The Bill of Rights is basically a dead letter.

When talking about guns, however, it’s a mistake to reference the Constitution. It means nothing to the 96% of the world outside the US. And it is just a document, which can be—and probably will be—changed or abandoned entirely. The essential issue here about guns is that it differentiates a free man from a slave. Historically a free man has the right to be armed and defend himself. A slave does not.

Sam Colt made it possible for a 90-pound woman to be equal to a 200-pound man who was attacking her. Sam Colt did more to protect the rights of the weak than every legislature since Day One.

Gun control seems to be Beto O’Rourke’s signature proposal. But all of his other ideas are equally bad. Like every other presidential wannabe this year, he’s glib and thoughtless. And may actually be evil.

I hate to use that word, because it’s been so overused and degraded by Church Lady and tent-show preacher types. But it’s appropriate when talking about people like Beto and the others. It simply means purposefully destructive or morally insane.

The fact that evil is disguised or smiles sincerely or looks well intentioned or seems like a good idea at the time, doesn’t mean it isn’t evil. It’s mostly, as Hannah Arendt pointed out, banal.

Like all these candidates. That said, I rarely use the word "evil" in referring to these people.

Not because it isn’t appropriate, but because few Americans take the concept seriously anymore.

International Man: At one of the debates, the moderator asked the candidates if they would support the government providing medical care to illegal aliens. All of them supported the idea.

Bernie Sanders has advocated a "Medicare for all" plan and wants to cancel student loan debt.
Elizabeth Warren wants to give all Social Security recipients an extra $200 a month.

These are just a few examples of how the welfare state is about to skyrocket. What is your take on this?

Doug Casey: Yeah, Bernie—a roiling mass of antagonism, bitterness, hatred, and aggression.

The best thing about him is his psychological transparency. Frankly, it’s unseemly for a 78-year-old to want to force other people to pay his medical bills.

Also, doctors today don’t even get to practice medicine. Most of their time is spent filling out forms and complying with regulations. Many doctors are leaving the practice because they simply don’t have time to practice medicine properly. And the risks and aggravations aren’t worth the reward—certainly when they likely have hundreds of thousands of dollars of student loans to pay off and can really start practicing only when they’re pushing 30.

If you’re an American and don’t have a company paying your insurance and you need a serious medical operation, a smart thing for you to do is to fly to Thailand or another medical tourism venue.

Have the procedure done there at perhaps an 80 or 90% discount from what it costs in this country.

If we have Medicare or Medicaid for all, no matter where you came from or who you are or what you can pay, I would expect people from Thailand would be flying here to the United States. The idea is economically and medically impossible. But legally plausible.

Here’s an idea. Your body is your primary possession. But it’s like a car—try to keep it in good condition. If it breaks, you pay for it—it’s not up to the government or the taxpayer to fix it. The idea of free medical care—like free education, free housing, free food, and the rest of it—is both destructive and degrading. The fact these things are discussed as practical possibilities shows that the society as a whole is irresponsible and apparently no longer capable of thinking in economic, ethical, or philosophical terms.

It’s going to end badly.

International Man: Putting it all together, what does the state of American politics today say about society and the future of the country?

Doug Casey: These people, these political types, like to talk about America being an exceptional country. In fact, it once was exceptional. It really was different from every other country of the world.

But now it’s philosophically and ethically identical to every other country in the world.

Property rights are no longer taken seriously. The public doesn’t really believe in them anymore. Most of the country wants to have socialism.

We’re on the slippery slope and it augers very poorly.

The United States is only a generation or two behind Argentina, which was actually on par with the US in the early 20th century. But today Argentina is moving in the direction of Venezuela, which 30 years ago was the richest country in South America. Too bad. I like both the US and Argentina, but it’s sad to see Argentina leading the way.

International Man: What are the investment implications?

Doug Casey: It’s very hard to be an investor. At this point, you can only attempt to speculate, to stay ahead of what these people are doing. It’s becoming a zero-sum game.

The Democrats are basically setting the country up for a civil war between the people who have things and produce things and the people who don’t have things and don’t want to produce. Not only are the ideas they’re promoting stupid; they’re really dangerous.

Here’s a gratuitous prediction: Unless magic happens, Elizabeth Warren—Pocahontas—is likely your next president.

Editor's Note: Misguided economic ideas are advancing rapidly in the US. In all likelihood, the public will vote itself more and more "free stuff" until it causes an economic crisis.

With the increasing prospect socialists will soon gain power in the US, and it's all coming to climax.