Tag Archives: economics

Sustainable Development: The Future of Investing

InvestMy Comments: Followers of this blog have seen the ideas expressed by Scott Minerd. I share them with you as I think they are important ideas, intended by me to help you better understand the role that money plays in your life. As I’ve expressed many times, we live in a society where having more money is better than having less.

Scott Minerd, Chairman of Investments, Guggenheim Partners, May 20, 2016

I grew up in Western Pennsylvania during a halcyon period. It was the 1960s, the postwar industrial economy was booming, and Pittsburgh supplied about 70 percent of the world’s steel. There was a feeling of great prosperity and limitless opportunity, but that would soon change. By the end of the 1970s the steel mills I knew as a boy had been shuttered. The collapse of the massive regional industrial complex left blighted towns, impoverished lives, and a polluted environment. I wondered why my hometown failed so miserably, why the roadmap for economic development in the region ended with such disaster.
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“At its core, sustainable development means investing in safe, reliable infrastructure and financing projects that will power our world, feed our people, and foster growth in ways that preserve and protect our environment.”
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Looking back at this and many other hard lessons from history, we see how critical sustainable development is to healthy economic growth and social progress, which is why it is also the “true north” by which every investment compass must navigate. Sustainable development is about delivering strong and stable investment returns in efficient, effective, consistent ways for the future of the world. At its core this means investing in safe, reliable infrastructure where almost none exists, and financing innovation in the sectors that will power our world, feed our people, and foster growth in ways that preserve and protect our environment. That is sustainable development.

But capital will only flow to sustainable development in the future if it can also meet the institutional investor’s mandate to generate strong and stable returns.

The good news is achieving strong and stable returns no longer requires trade-offs. We no longer need to sacrifice economic growth for environmental protection, or give up compelling returns in order to make responsible investments. In fact, in the future, I believe it will be impossible to deliver strong and stable returns without a principled approach to sustainability.

Nowhere is this principled approach to investing needed more than in the Arctic region. The Arctic is truly the final frontier market for global investors, and it is the bellwether for the sustainable development movement. Home to 12 million people and $450 billion in annual economic output, the Arctic already produces a significant share of the world’s food, minerals, and energy. As climate change affects the Arctic, the region will only grow in environmental and economic importance to the world. Arctic sea ice currently covers 65 percent less of the region than it did in 1979. By 2040, the Northern Sea Route could be open year round, resulting in faster, more energy-efficient global trade. In addition, the Arctic holds an estimated one-quarter of the world’s undiscovered oil and gas reserves, but its ability to generate and share energy from wind, hydro, tidal, geothermal, solar, and biomass will make it a leader in the future of clean energy.

As the climate transforms the Arctic, so will the Arctic transform the world, creating extraordinary long-term investment opportunities with real responsibilities. To adapt and thrive, communities will need critical and careful investment, paired with a strong commitment to protect and preserve the environment for future generations.

The World Economic Forum Global Agenda Council on the Arctic took an important step towards this goal by establishing six foundational and formative principles for responsible investment in the Arctic, called the Arctic Investment Protocol. We estimate that infrastructure investments in the region are expected to reach US$1 trillion over the next 15 years, and these principles set clear standards for sustainable and responsible business practices, governance, and environmental stewardship.

The Arctic, with its possibilities and challenges, is just one example of the global need for sustainable development. Last year, 193 nations adopted the United Nations Global Goals for Sustainable Development (SDGs), which aim to end extreme poverty, protect the planet, and ensure prosperity for all.

The SDGs require up to an estimated $4.5 trillion per year in capital investment in developing countries between 2015 and 2030. Current investment in these areas is around $1.4 trillion, leaving an annual investment gap of around $3.1 trillion. If just 1 percent of the $300 trillion global capital stock were allocated to sustainable development each year for the next 15 years, we could free the world from extreme poverty, spare millions from the perils of preventable disease and lack of education, and promote freedom and economic opportunity. We can achieve this and so much more if we recognize we no longer live in a world of trade-offs. Smart, strategic investments in sustainable development today can deliver strong, stable returns, and make the world a better place.

Sinking Atlantic Coastline Meets Rapidly Rising Seas

My Comments: Our esteemed Governor, Rick Scott, has decreed that the phrase ‘climate change’ cannot be uttered by any state employee. OK.

But it doesn’t change the reality that the planet is experiencing a warming trend that may or may not be influenced by advances in human activity. The reality is that for the foreseeable future, our coastlines, and those who live there, are going to be increasingly under threat. I happen to live in central Florida where coastal flooding last happened many millions of years ago and I suspect I’ll be long gone before it happens again.

But my grandchildren will experience over the next 70 years and more what some of us can rationally predict will happen. Some effort by our elected leaders, to mitigate the threat, seems to be a rational expectation.

By John Upton, Climate Central on April 14, 2016

The 5,000 North Carolinians who call Hyde County home live in a region several hundred miles long where coastal residents are coping with severe changes that few other Americans have yet to endure.

Geological changes along the East Coast are causing land to sink along the seaboard. That’s exacerbating the flood-inducing effects of sea level rise, which has been occurring faster in the western Atlantic Ocean than elsewhere in recent years.

New research using GPS and prehistoric data has shown that nearly the entire coast is affected, from Massachusetts to Florida and parts of Maine.

The study, published this month in Geophysical Research Letters, outlines a hot spot from Delaware and Maryland into northern North Carolina where the effects of groundwater pumping are compounding the sinking effects of natural processes. Problems associated with sea level rise in that hot spot have been — in some places — three times as severe as elsewhere.

“The citizens of Hyde County have dealt with flooding issues since the incorporation of Hyde County in 1712,” said Kris Noble, the county’s planning and economic development director. “It’s just one of the things we deal with.”

On average, climate change is causing seas to rise globally by more than an inch per decade. That rate is increasing as rising levels of greenhouse gases in the atmosphere trap more heat, melting ice and expanding ocean waters. Seas are projected to rise by several feet this century — perhaps twice that much if the collapse of parts of the Antarctic ice sheet worsens.

Ocean circulation changes linked to global warming and other factors have been causing seas to rise much faster than that along the sinking mid-Atlantic coastline — more than 3.5 inches per decade from 2002 to 2014 north of Cape Hatteras in North Carolina, a recent study showed.

The relatively fast rate of rise in sea levels along the East Coast may have been a blip — for now. The rate of rise recorded so far this century may become the norm during the decades ahead. “Undoubtedly, these are the rates we’re heading towards,” said Simon Engelhart, a University of Rhode Island geoscientist.

Engelhart drew on data from prehistoric studies and worked with two University of South Florida, Tampa scientists to combine it with more modern GPS data to pinpoint the rates at which parts of the Eastern seaboard have been sinking.

Their study revealed that Hyde County — a sprawling but sparsely populated farming and wilderness municipality north of the Pamlico River — is among the region’s fastest-sinking areas, subsiding at a little more than an inch per decade.
CONTINUE-READING

How to Trump-proof Your Portfolio

global investingMy Comments: This is not intended as a political statement. However, clients are asking me whether there are likely to be economic consequences, and therefore an impact on their investment portfolios, if Donald Trump wins the Presidency. These comments appeared in The Financial Times and may or may not apply to you.

Gillian Tett – May 5, 2016 – The Financial Times

This year investors have grappled with a plethora of global mysteries: Brexit, war in the Middle East, negative interest rates, energy prices, the Chinese debt bubble, Russian President Vladimir Putin’s policymaking and drama in Brazil.

Now, however, we face another big uncertainty: what an election battle between Donald Trump and Hillary Clinton might do to American asset markets.

Although Mrs Clinton, the presumed Democrat nominee, appears to have a fairly big lead over Mr Trump in the polls, the outcome of November’s presidential vote looks uncertain. We have all learnt in the past year how wrong pollsters can be.

What is even more unnerving for investors is that, as populism gathers momentum, it is eroding many of the normal boundaries of “right” and “left”, “pro-business” and “anti-business”. Discerning clear policy patterns amid the wild rhetoric is not easy for either Democrats or Republicans.

So what is an investor to do if they want to Trump-proof their portfolio — or even benefit from an ugly Clinton-versus-Trump fight? In the coming weeks, sellside banks and financial advisers will produce acres of ideas. Here are five of my own.

First of all, do not buy banks; or not if you hope government will boost their share price. Until recently, Mrs Clinton was perceived as being soft on Wall Street; indeed, some financiers hoped that bank-bashing would end in 2016.

But Bernie Sanders, her Democratic rival, has performed so well that Mrs Clinton will face pressure to steal his “socialist” language to appease his supporters, and may well pick an anti-Wall Street figure as her running mate, such as Sherrod Brown, an Ohio senator.

Mr Trump may not be so different. Many Republicans would love to repeal the post-crisis financial reforms, and he has criticised the Dodd-Frank Act. But he also seems instinctively hostile to Wall Street. As a self-appointed hero of angry main street voters, he is unlikely to embrace banks.

Second, do not expect a rally in Treasury bonds; at least, not one driven by debt cuts. A couple of years ago, it was presumed that by this point in the economic cycle policymakers would be discussing how to cut America’s vast debt burden. But Mrs Clinton is no fiscal hawk. On the contrary, she seems to lean towards fiscal stimulus, and may try to appease supporters of Mr Sanders this way.

And, while the Tea Party wing of the Republican party is eager to slash debt, Mr Trump has built a career on exploiting leverage. He has vaguely promised to get rid of America’s $15tn debt in eight years; but he also wants to create jobs, boost growth and protect entitlements. Little wonder that traditional fiscally hawkish Republicans dislike him.

Third, embrace infrastructure stocks — whoever wins. Mr Trump built his brand with construction, and were he to win in November he would be likely to unleash a national infrastructure campaign to create jobs and growth. He likes the idea of being a second Dwight Eisenhower, the man who built America’s Interstate highway system.

But Mrs Clinton may do this too. After all, as Lawrence Summers, the former US Treasury secretary, recently pointed out, the beauty of infrastructure spending is that it could create middle-class jobs and growth at a time when monetary policy has reached its limits — at least, if you do not mind raising debt.

Fourth, expect currency volatility. The most eye-grabbing element of Mr Trump’s campaign so far has been his threats about trade protectionism. But Mrs Clinton has turned more protectionist, too, toning down her support of the Trans-Pacific Partnership. No one knows if her newfound caution will actually change trade flows or supply chains. But sabre-rattling on the global stage could certainly quickly unleash some currency swings.

Finally — and most importantly — investors need to invest in assets with an eye to capricious government intervention. After all, if there is one thing that will make sense of this peculiar election, it is the idea that voters have lost faith in the free-market political centre.

With populism rife, Mrs Clinton may deploy more consumer protection and regulation in response, while Mr Trump may plump for endless protectionism.

Either way, if you want to invest in pharma, cars, tech or pretty much anything else, you would be a fool to make your choice based on economics or free-market theories alone. Populism matters, in investing and politics alike now — even, or especially, if it makes your head spin.

High and Dry: Climate Change, Water, and the Economy

blackhole2My Comments: This video appeared on http://www.worldbank.org. It reminded me of comments from several years ago by Thomas P.M. Barnett, an American military geostrategist and former Chief Analyst at Wikistrat. He argued that over the next few decades, the US would remain the pre-eminent global society because we alone, perhaps along with Canada, have the necessary resources to feed ourselves. In short, the availability of, and ability to produce food, will be the primary determinant of who survives. But without water, there will be little food.

A new World Bank reports finds that water scarcity, exacerbated by climate change, could hinder economic growth, spur migration, and spark conflict. However, most countries can neutralize the adverse impacts of water scarcity by taking action to allocate and use water resources more efficiently.

Here’s a short video that presents the analysis:

https://youtu.be/bTO6bNhsHl4
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Key Findings
• Water scarcity, exacerbated by climate change, could cost some regions up to 6% of their GDP, spur migration, and spark conflict.
• The combined effects of growing populations, rising incomes, and expanding cities will see demand for water rising exponentially, while supply becomes more erratic and uncertain.
• Unless action is taken soon, water will become scarce in regions where it is currently abundant – such as Central Africa and East Asia – and scarcity will greatly worsen in regions where water is already in short supply – such as the Middle East and the Sahel in Africa. These regions could see their growth rates decline by as much as 6% of GDP by 2050 due to water-related impacts on agriculture, health, and incomes.
• Water insecurity could multiply the risk of conflict. Food price spikes caused by droughts can inflame latent conflicts and drive migration. Where economic growth is impacted by rainfall, episodes of droughts and floods have generated waves of migration and spikes in violence within countries.
• The negative impacts of climate change on water could be neutralized with better policy decisions, with some regions standing to improve their growth rates by up to 6% with better water resource management.
• Improved water stewardship pays high economic dividends. When governments respond to water shortages by boosting efficiency and allocating even 25% of water to more highly-valued uses, such as more efficient agricultural practices, losses decline dramatically and for some regions may even vanish.
• In the world’s extremely dry regions, more far-reaching policies are needed to avoid inefficient water use. Stronger policies and reforms are needed to cope with deepening climate stresses.
• Policies and investments that can help lead countries to more water secure and climate-resilient economies include:
o Better planning for water resource allocation
o Adoption of incentives to increase water efficiency, and
o Investments in infrastructure for more secure water supplies and availability.

Onward, Fellow Humans!

bruegel-wedding-dance-ouMy Thoughts: This is not political, but these days it’s hard to not have an intelligent conversation about life without it having political overtones. And as someone intimately involved with economics and finance, these thoughts by Joe Brewer resonate with me. It’s about a five minute read.

By Joe Brewer, April 21, 2016

The Pain You Feel is Capitalism Dying

It can be very confusing to know that you won’t find a decent job, pay off student loans or put in a down payment on a house in the next few years — even though you may have graduated from a top-tier university or secured glowing references from all those unpaid internships that got you to where you are today.

Even if you are lucky enough to have all of this going for you, you’ll still be one among hundreds of applicants for every job you apply for. And you’ll still watch as the world becomes more unequal, with fewer paid opportunities to do what you feel called to do in your work or for your life path.

What’s more, you won’t find much help from your friends because most (if not all) of them are going through the same thing. This is a painful and difficult time that is impacting all of us at once.

There will be people who tell you it’s your fault. That you aren’t trying hard enough. But those people are culprits in perpetuating a great lie of this period in history. The standard assumptions for how to be successful in life a few decades ago simply do not apply anymore. The guilt and shame you feel is the mental disease of late-stage capitalism. Embrace this truth and set yourself free.

To see how broken things have become you’ll have to think systemically. Take note of the systems built up to create this situation and understand how it came to be — so you’ll see why it cannot possibly continue on its current path.

First, a diagnosis of the problem:

A Global Architecture of Wealth Extraction has been systematically built up to rig the economic game against you. This is why a tiny number of people (current count is 62) have more wealth amongst them than half the human population. Decades of those using tax havens to hide their wealth, unfair trade agreements designed to extract wealth from poor countries, banking regulations and austerity measures meant to destabilize entire economies so massive transfers of wealth can go from everyone else to a tiny financial elite, and election rules that all-but-guarantee only those who become whores to these financial pimps will ever sit in high office.

So yeah, it’s okay to feel restless as capitalism winds itself down from these system-level harms to society.

Why do I say that capitalism (in its corporatist, wealth-extracting form) is dying? There’s a long, detailed story that could be told about this. For the sake of brevity, I will answer with two essential pieces that show how business-as-usual is finished. It is physically impossible for it to continue much longer.

Reason 1: There Are No More Profits to Extract.
As eloquently described in the writings of Jeremy Rifkin and Paul Mason, the primary motivator for capitalists — to extract wealth from consumer exchange in the form of monetary gain — is crippled by the fact that the science of wealth extraction has become so advanced that every new wave brings diminishing returns. What is called “marginal cost” by economists, the difference between how much it costs to produce something and what people are willing or able to pay for it, is nearly zero now for everything we manufacture or provide as a service. This zero marginal cost trend is breaking capitalism down by the unexpected outcome of its own spectacular success.

Add to this that most of the growth in the global economy in the last 40 years has been in speculative finance. The money system grows faster than the productive “real” economy — with the predictable outcome of market crashes, financial collapse, and structural adjustments (wealth extraction) when the mismatch grows too large. What we end up with is bloated debt too large for everyone to pay back. Combined with the end game of wealth hoarding mentioned above, this is a death knell for capitalism as we’ve known it in the last 100 years.

Reason 2: Damage Built Up in the Natural World
There is no such thing as an economy that exists without the physical world. The delusional idea that markets are separate from nature has guided mainstream economic policy for a long time — and now we are seeing the consequences in mass extinctions, loss of topsoils, climate change, collapse of fish stocks in the world ocean, rising levels of pollution, and more.

Physicists would describe this as increasing entropy, which simply means the rise in social complexity of human economies comes with a corresponding deterioration of the larger natural environments they are embedded within. And we have crossed the unprecedented watermark of history in the 20th Century — with exploding population growth, and the crossing of several essential planetary boundaries (any of which, if passed, will place our civilization in jeopardy). At current count, we have passed four of them.

So the nails are in the coffin for capitalism. What remains to be seen is whether this will take down our globalized civilization as well. I am hopeful, yet sober about our prospects. It’s going to be a very turbulent time (for the rest of our lives) but I think we can make it through this restlessness by acknowledging that it’s real, naming the architecture of wealth extraction that created these systemic harms, and dismantling this globalized system to release vital monetary resources for the emergence of a new, life-affirming paradigm for economic development.

But before we can begin this great work of our times, we must acknowledge the pain that a dying capitalist system creates in our personal lives. I know it hurts. It is quite natural to feel ashamed when you try really hard and do your best, yet still are unable to succeed. You’ll need to change the rules of the game (a few of which I have outlined here). And doing this is going to require going through a healing process internally for yourself and with your friends.

You are not alone. All 7.4 billion of us alive today are going through this. We are doing it together. Now is the time to become fully aware of the systemic nature of what we are going through. The future will not be like the past. It is going to be painful and confusing at times. Yet the prospects for getting through this struggle are nothing less than a thriving planetary civilization that is inclusive and nourishing for all people while at the same time remaining in harmony with our home planet of Earth.

Onward, fellow humans.

The Fury Of American Voters Is In Its Infancy

voteMy Comments: Writing about personal finance matters is something I enjoy. Given my limited vocabulary, however, I resort to finding stuff written by others that resonate with me and then sharing with others. Sometimes it works and sometimes it doesn’t.

Mix this up with the current political climate and there is an added resonance for me. I’ve argued for years now that a growing disconnect between the ‘haves’ and the ‘have nots’ in this country will lead to rioting in the streets if it’s not addressed. The fascinating thing is an increasing hubbub in the background that this disconnect is being recognized. And that’s a good thing.

I pray that enough young voters show up at the election sites to make their voices heard.

Roger Altman, April 4, 2016

There is a deep anger in the American electorate that explains the rise of two candidates whose presidential campaigns would, in previous election years, have been killed off well before now. It explains why voters are prepared to overlook the relentless insults of Donald Trump, the Republican frontrunner, and the avowed socialism of Bernie Sanders, the main rival to Hillary Clinton for the Democrats, while embracing their unorthodox stances on trade, healthcare and much else. And it explains why two-thirds of Americans say the country is on the wrong track.

At its heart, this anger is economic. Ever more Americans are having trouble making ends meet. Many of the jobs created since the financial crisis are low-wage. And voters do not expect better incomes in the future. For a nation accustomed to believing that each generation would live better than its predecessor, this is a bitter pill.

This economic pressure is not temporary either, because the trends undermining incomes — technology and globalisation — are in their early stages and still accelerating. All the talk from Mr Trump and Mr Sanders about building border walls and killing trade agreements misses the point. Such steps would have no discernible impact on these powerful trends. What is needed are bolder income support policies to cushion workers against them.

How weak are incomes? Today’s real median household income is $53,600, down nearly 7.5 per cent from the peak seen 20 years ago. And real median wages per hour have fallen 4 per cent since the financial crisis. Further, while 14m net new jobs have been created since the crisis, nearly half of these are in the low-wage sector, as defined by the Bureau of Labor Statistics. Of the new jobs that will be created between now and 2025, according to the BLS, more than 90 per cent will pay $36,000 or less annually. In 2013, 22 per cent of children, at some point that year, did not have enough to eat. This cannot be the America we want.

There are two reasons for the downward pressure on income. One is technology. In earlier periods, technology created as many decently paid jobs as it destroyed. That is no longer the case. Just look at total private-sector employment: it has returned to pre-recession levels; but the proportion of decently paid jobs in manufacturing, construction and information services are below the levels of 10 years ago.

Sales of US-made vehicles, for example, are at record levels today in America but automation has sharply reduced employment in the industry. Digital processes, still in their infancy, are reducing innumerable categories of white-collar employment, such as customer service.

Then there is globalisation. Even a generation ago, the US was the biggest market in the world for many products. No longer. Whether it is toothpaste, cars or consulting services, rising living standards across the world have generated a much bigger market for many of America’s products. In response, businesses have created more jobs — with lower pay — overseas than in the US. Africa, the largest emerging global market, is just coming into focus.

On this basis, American incomes will remain weak. Which is why we need to provide a more effective education system. If one-tenth of working-age men who do not have a university degree were to earn one, the 35-year decline in median wages would disappear. So we must make a greater effort to help students complete their degrees.

We also need to provide greater income support for middle and low-wage workers. There are two possible approaches. First, double the impact of the earned income tax credit (EITC) by raising both eligibility levels and payment limits. Second, combine this with a higher minimum wage linked to inflation. Such moves would boost take home pay for tens of millions of working Americans.

Yes, doubling the EITC would cost taxpayers another $60bn annually. But this is not a big sum by federal budget standards and could readily be financed by phasing in higher taxes on dividends and capital gains. Many forget that tax rates on income from capital are not high by historical standards.

In the longer term, it is possible that more advanced technologies will permanently reduce the demand for human labour. If this ensues, we may eventually consider a universal guaranteed income for working age adults.

The point is that the income pressures we see today are going to continue. If we ignore them, voter anger will intensify. It could make Mr Trump’s brand of authoritarianism look moderate.

The writer is founder and executive chairman of Evercore and was deputy US Treasury secretary under President Bill Clinton

The Global Liquidity Trap Turns More Treacherous

bear-market--My Comments: Global liquidity or lack of it, is a prescription for investment success, or lack of it. If your retirement funds are threatened, then this might mean something to you. It’s not something to obsess over but it’s something I watch out for and hopefully find some remedies. Some of our presidential candidates will likely get us way deeper into this trap.

April 07, 2016 by Scott Minerd, Guggenheim Partners, LLC

For the first time since the Great Depression, the world is in a liquidity trap.

The unintended consequence of many central banks pushing negative interest rate policy is conjuring deflationary headwinds, stronger currencies, and slower growth—the exact opposite of what struggling economies need. But when monetary policy is the only game in town, negative rates are likely to beget even more negative rates, creating a perverse cycle with important implications for investors.

When central banks reduce policy rates, their objective is to stimulate growth. Lower rates are designed to spur savers to spend, redirect capital into higher-return (i.e. riskier) investments, and drive down borrowing costs for businesses and consumers.

Additionally, lower real interest rates are associated with a weaker currency, which stimulates growth by making exports more competitive. In short, central banks reduce borrowing costs to kindle reflationary behavior that helps growth. But does this work when monetary policy is driven through the proverbial looking glass of negative rates?

There is a strong argument that when rates go into negative territory it squeezes the speed at which money circulates through the economy, commonly referred to by economists as the velocity of money.

We are already seeing this happen in Japan where citizens are clamoring for 10,000-yen bills (and home safes to store them in). People are taking their money out of the banking system to stuff it under their metaphorical mattresses. This may sound extreme, but whether paper money is stashed in home safes or moved into transaction substitutes or other stores of value like gold, the point is it’s not circulating in the economy.

The empirical data support this view—the velocity of money has declined precipitously as policymakers have moved aggressively to reduce rates.

A decline in the velocity of money increases deflationary pressure. Each dollar (or yen or euro) generates less and less economic activity, so policymakers must pump more money into the system to generate growth.

As consumers watch prices decline, they defer purchases, reducing consumption and slowing growth. Deflation also lifts real interest rates, which drives currency values higher. In today’s mercantilist, beggar-thy-neighbor world of global trade, a strong currency is a headwind to exports.

Obviously, this is not the desired outcome of policymakers. But as central banks grasp for new, stimulative tools, they end up pushing on an ever-lengthening piece of string. The Bank of Japan and the European Central Bank are already executing massive quantitative easing programs, but as their balance sheets expand, assets available to purchase shrink. The BOJ now buys virtually all of the Japanese government bonds that are issued every year, and has resorted to buying exchange traded funds to expand its balance sheet.

The ECB continues to grow the definition of assets that qualify for purchase as sovereign debt alone cannot satisfy its appetite for QE. As options for further QE diminish, negative rates have become the shiny new tool kit of monetary policy orthodoxy.

If Dr. Draghi and Dr. Kuroda do not get the outcome they want from their QE prescriptions—which is highly likely—then more negative rates will be on the way.

It would not be a surprise to see the overnight rates in Europe and Japan go to negative 1 percent or lower, which will in turn pull down other rates along their respective yield curves.

Negative rates at these levels would make U.S. Treasurys much more attractive on a relative basis, driving yields even lower than they are today.

If the European overnight rate were cut to minus 1 percent from its current level of negative 40 basis points, German 10-year bunds would be dragged into negative territory and we could see 10-year Treasurys yielding 1 percent or less.

This experiment with negative interest rates on a global scale is unprecedented. While there may not yet be enough data to draw the final conclusion about the efficacy of negative interest rate regimes, I have little confidence this will work.

Monetary policy primarily addresses cyclical economic problems, not structural ones. Fiscal and regulatory policies are doing little to support growth, and in most cases are restraining it. Combined with negative interest rates, the current policy prescriptions are a perilous mix that is deepening the global liquidity trap.