Billionaire bond king Jeffrey Gundlach says that negative interest rates will cause long-term problems for the banking system.Earlier this year, negative-yielding debt worldwide peaked at nearly $18 trillion, but has since retreated to around $11.5 trillion. With major central banks flooding markets with cheap liquidity to help sustain growth, investors are effectively paying governments to hold safe-haven debt — a dynamic that economists warn isn’t sustainable."It's one of these things that [policymakers] view as a short-term solution, knowing that over the long-term it's devastatingly bad," the CEO of $150 billion DoubleLine Capital said in a recent wide-ranging interview with Yahoo Finance.That hasn’t stopped President Donald Trump from demanding negative rates in America, something Federal Reserve Chairman Jerome Powell has ruled out for now. The European Central Bank’s push for sub-zero rates has created headaches for the continent’s banks, and fears over future implications.
According to Gundlach, the negative interest rate problem can be likened to the U.S. national debt predicament, in that it has grown massively but "still hasn't appeared to be a problem.”The billionaire investor told Yahoo Finance that “what they're doing is they're trying to stimulate their economy through negative interest rates. And the banks and the insurance companies are really suffering underneath this policy.”The morass of negative rates means that European banks and insurers have “massively underperformed for obvious reasons. If interest rates are negative, how can an insurance company that has annuities that pay a positive rate — how can they possibly achieve that return?" Gundlach asked....MORE
Ya think?
