SEPTEMBER 4, 2019 – Yesterday I ran into “Charlie.” We used to work at the same bank, where he managed money, and I managed corporate trust accounts. That’s how we met. I still run into Charlie on a regular basis, and every time I get his take on the economy. He’s smart, reads voraciously, and has a ton of experience. When he talks, I listen.
Yesterday Charlie hit three points: 1. In Europe, where German bonds earn negative interest and Italian debt is “funny money,” disaster awaits, but South America is already a catastrophe, and China banks are precariously top-heavy with bad debt; 2. With interest rates so low, many loser companies are still able to borrow themselves silly; and 3. Buy gold.
On the way back to my office, I mulled over Charlie’s worrisome comments about current global debt markets and interest rates. Think about global debt as the oil in your car’s crankcase: you might not know—and have no interest in knowing—the condition, viscosity, or chemical composition of that oil or the consequences of having too much or too little, but if the oil gets seriously out of whack (i.e. the world’s financial condition goes very south), you’ll know it and feel it in a very direct way—your car (i.e. your job, pension, finances) will malfunction or stop running altogether.
Ironically, one of my afternoon tasks was to assemble documentation for the redemption of a bunch of old U.S. Savings Bonds—government debt—that my grandfather had purchased annually between 1950 and the late 1970s. He’d died back in 1988 at age 92, but the bonds had surfaced only recently. Every December, it turns out, he’d purchased a $50 bond, perhaps as a symbolic patriotic gesture reminiscent of buying War Bonds during the war times.
Alone in my office I turned over each bond chronologically and entered its issue date and serial number on the redemption form. With each bond after 1954, I thought about one thing that had occurred in my life in the year of the bond, one world event, and one thing that was probably going on in my grandfather’s life, based on what I knew of it. It was a quick trip down a three-lane memory highway.
I then turned to the required documentation for redemption, which included Grandpa’s New Jersey death certificate. One section was marked “Ethnic Origin.” The choices were: Puerto Rican, Cuban, Mexican, German, Italian, and Other (specify). Typed below “Other” was “English-Scottish”—even though Grandpa’s American lineage, both sides, went back to the early 17th century. The choices seemed quaintly insular from a global perspective.
When I went online to obtain additional New Jersey probate documentation, I found that instructions were available in English, Spanish and . . . Korean. If you’re German or Italian, you’re now out of favor—not only for online probate instructions in Bergen County, New Jersey, but according to Charlie, if you hold sovereign debt issued by Germany* or Italy.
*Technically, you’d buy German bonds despite negative interest because their strength relative to other types of debt serves to hedge portfolio risk. But their anomalous negative return reflects distortions elsewhere in global debt markets—a topic well beyond this post.
© 2019 Eric Nilsson
