Front Page|Our Services|Our Team|Client Center|Financial News|Events|Contact Us

Financial Briefs

More Articles  Printer Friendly Version


How Negative Interest Rates In Germany Limit Pandemic Economic Damage To U.S.

(May 5, 2020, 8 p.m. EST) - While the coronavirus pandemic has exacted a once-unimaginable toll in human life, its financial cost is cushioned by an unusual confluence of global conditions shielding Americans from a much-worse economic catastrophe.

A country's economic growth is the product of two factors: growth in its labor force and productivity gains. National productivity gains can be altered or enhanced almost immediately by government policy or extraneous factors beyond government control. However, growing the labor force, even if a national policy to have more children were instituted today, would take 20 years to kick in. That's is the earliest time frame in which children born within the next year will start entering the labor force. To investors, 20 years is an eternity! Thus, a nation's economic growth hinges on an almost permanent axis based on national demographics.

Currently, the working age population in Germany is growing slowly relative to the U.S. This led the German central bank to lower interest rates to stimulate economic activity. Lending rates have been lowered so much that long-term German bonds are priced to trade at yields below zero. This means that bondholders of German government bonds are paying the government to keep their money!

Because bonds are traded worldwide and Germany is the second-largest supplier of sovereign bonds worldwide, negative rates in Germany have led investors worldwide to buy U.S Treasury bonds instead of lower-yielding German Bunds. That anomaly is causing U.S. long term bonds to rise in price and that in turn has depressed yields on U.S. Treasury debt. As a result, the massive aid packages are costing the U.S. Government next to nothing in terms of interest on the borrowings!

While this may seem academic, it has real world consequences. Anomalous global economic conditions are supporting greater U.S. Government largesse while adding a negligible amount to the long-term national debt. Negative interest rates in Germany are making it possible for Uncle Sam to bolster funding for the CARES Act, as well as programs like the Paycheck Protection Program, the Supplemental Nutrition Assistance Program (SNAP) for food stamps, the hike to unemployment insurance compensation payments and other U.S. Federal Government aid.

Conclusion: The U.S. is benefiting from foreign demographic trends in its fight to limit the pandemic's economic damage.

Email this article to a friend

Act Before Hitting The Crossroad Of Fiscal And Tax Reality
The Bull Market Broadened Recently
An Important Investment Idea To Remember In 2021
New Covid Aid Law Waives 10% Penalty On Pre-59½ Retirement Plan Withdrawals
What Business Owners Need To Know About The New Aid Package
A Call To Act On The Coming Tax Hikes
Staying Focused On Strategic Financial Planning
Will M2 Be The Big Investment Story Of 2021?
Test Your Knowledge Of Urgent Wealth Management Issues
Neither Red Nor Blue, Tax Planning Is All About The Green
Urgent Year-End Tax Planning Moves
Investors Beware: SEC Is Struggling Amid Covid
Food For Thought
Starting A Business? Plan To Succeed
Stock Market Rally Broadened In Past Three Months
3Q 2020 Wealth Management Report

This article was written by a professional financial journalist for Vantage Point Financial Services, LLC and is not intended as legal or investment advice.

©2021 Advisor Products Inc. All Rights Reserved.
© 2021 Vantage Point Financial Services, LLC | 329 Regency Ridge Drive, , Centerville, OH 45459 | All rights reserved
P: 937-432-1111 | F: 937-432-1110 |
Contact Us

Securities offered through First Allied Securities, Inc., A Registered Broker/Dealer, Member: FINRA / SIPC.
Advisory services are offered through First Allied Advisory Services, Inc., A Registered Investment Adviser.

This site is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security which may be referenced herein. We suggest that you consult with your financial or tax advisor with regard to your individual situation. This site has been published in the United States for resident of the United States. Persons mentioned in this site may only transact business in states in which they have been properly registered or are exempt from registration.

Privacy Policy | ADV