Negative interest rates and what it means

February 17th, 2016 at 3:02:29 PM permalink
Pacomartin
Member since: Oct 24, 2012
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Central bankers 'don't have a clue' - Jim Rogers by Alanna Petroff February 15, 2016

Central bankers around the world have been increasingly using negative interest rates to prop up inflation and support their economies, but Rogers said the moves aren't working. He said they are simply trying to rescue stock markets and help brokers keep their Lamborghinis.
February 17th, 2016 at 3:22:38 PM permalink
AZDuffman
Member since: Oct 24, 2012
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Quote: Pacomartin

Central bankers around the world have been increasingly using negative interest rates to prop up inflation and support their economies, but Rogers said the moves aren't working. He said they are simply trying to rescue stock markets and help brokers keep their Lamborghinis.


Great clip, thanks for posting. Scary how much of what he said is so much of what I have been trying to tell anyone who will listen. Meanwhile, we are seeing proposals to get rid of the $100 bill, right when we should really consider adding the $500 due to inflation!

Maybe I have too much time at work to follow and think about it or maybe I am the equivalent of a guy sitting in Berlin in 1931 and looking for a place to emigrate to because of what he is seeing.

The beauty (scary) part from the Central Banker's view is i doubt 20% of the population understands what the Fed is and what they do. Half the population will hear "negative interest rates" and think their Visa balance will magically be going down. Academics might have to start computing what happens when you have a loose money policy that at the same time reduces the money supply.

Cash, gold, and real property are all not bad ideas at least for some of your wealth.
The man who damns money has obtained it dishonorably; the man who respects it has earned it
February 17th, 2016 at 3:30:39 PM permalink
odiousgambit
Member since: Oct 28, 2012
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Quote: AZDuffman
Cash, gold, and real property are all not bad ideas at least for some of your wealth.


I know of no financial advisor who disputes that
Mustard:You like Kipling, Miss Scarlet? Sure, I'll eat anything [from movie]
February 17th, 2016 at 4:08:40 PM permalink
Pacomartin
Member since: Oct 24, 2012
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Quote: odiousgambit
I know of no financial advisor who disputes that

Lawrence H. Summers is the Charles W. Eliot University Professor and President Emeritus at Harvard University. He served as the 71st Secretary of the Treasury for President Clinton and the Director of the National Economic Council for President Obama.

The Age of Secular Stagnation: What It Is and What to Do About It
February 15, 2016
published in Foreign Affairs

Almost no one in 2009 imagined that U.S. interest rates would stay near zero for six years, that key interest rates in Europe would turn negative, and that central banks in the G-7 would collectively expand their balance sheets by more than $5 trillion.

Had economists been told such monetary policies lay ahead, moreover, they would have confidently predicted that inflation would become a serious problem—and would have been shocked to find out that across the United States, Europe, and Japan, it has generally remained well below two percent.

In the wake of the crisis, governments’ debt-to-GDP ratios have risen sharply, from 41 percent in 2008 to 74 percent today in the United States, from 47 percent to 70 percent in Europe, and from 95 percent to 126 percent in Japan.

Yet long-term interest rates are still remarkably low, with ten-year government bond rates at around two percent in the United States, around 0.5 percent in Germany, and around 0.2 percent in Japan as of the beginning of 2016. Such low long-term rates suggest that markets currently expect both low inflation and low real interest rates to continue for many years.

With appropriate caveats about the complexities of drawing inferences from indexed bond markets, it is fair to say that inflation for the entire industrial world is expected to be close to one percent for another decade and that real interest rates are expected to be around zero over that time frame. In other words, nearly seven years into the U.S. recovery, markets are not expecting “normal” conditions to return anytime soon.

...
February 28th, 2016 at 2:38:34 PM permalink
AZDuffman
Member since: Oct 24, 2012
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A little more on the economy and what just is not working.

U.S. Has Record 10th Straight Year Without 3% Growth in GDP.

It is not your imagination, the economy is just not that great. Even during the Depression we did not have such a stretch with such slow growth. Yes, the Depression was worse on the down, but better on the up. Just file that somewhere.

We have had record low, near zero interest rates for the entire period. Even with the most juice for the longest period, we still do not have anything beyond slow growth. Low rates and QE program after QE program, it isn't getting us out of second gear.

Just more food for thought that our latest monetary system, started 1965-1971, might well be reaching the end of its viability and something new will by necessity take it's place. Why I am trying to get my financial house in the best possible order.
The man who damns money has obtained it dishonorably; the man who respects it has earned it
February 28th, 2016 at 5:36:59 PM permalink
Pacomartin
Member since: Oct 24, 2012
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Quote: AZDuffman
We have had record low, near zero interest rates for the entire period. Even with the most juice for the longest period, we still do not have anything beyond slow growth. Low rates and QE program after QE program, it isn't getting us out of second gear.


We are now 488 days into Sweden's grand experiment with zero % repo-rate, and 381 days since they went negative. All of the central banks (including USA) are watching with deep interest to see if the people run to other currencies.
Date Repo-rate Days
10/28/2014 +0.00% 488
02/12/2015 -0.10% 381
03/18/2015 -0.25% 347

Of course zero and negative interest rates are being accompanied by 200 billion SEK in qualitative easement to prevent the Swedish Crown from going up in value against the Euro. But as ECB is introducing it's own QE programs which makes it much harder.
February 28th, 2016 at 9:17:07 PM permalink
petroglyph
Member since: Aug 3, 2014
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I like this guys take on Nirp.

"ThroxxOfVron


"The "market" wants to give governments money now and then get less money back 10 years later?

REEEEEEEEEEEEALLY?"



YES. IF "market" = banks.

-As long as the spread made on all the fractional reserve loans the banks will make with the cash they receive from rehypothecating those bonds creates more pofit than the costs of their tier 1 capital/seigniorage payment aka NIRP% paid on the bonds...

IF YOU could borrow at -.5% and loan at 3.5% you would have a 600% markup on the borrowed funding at a $1 to $1 basis.

With fractional reserve lending of multiples of the borrowed funds compounding the 600% markup..." end quote

In a little account I have the directors of that money, have to buy a certain [large] percentage of bonds. I ask, "why do you buy negative rate security's with my lifes work"? Simple they says, "dems the rules". Lots of retirements, 401k's etc. are in the same boat. What's the latest plan by .gov to force this generation into having a retirement? I think it's called Myra's? That, has to be "invested" in bonds,,,which pay a negative ror.

Removing the hundred dollar note, as well as Nirp have already been proposed. It is the way to force a digital currency that can disappear with a keystroke.

I guess that would be my complaint about citizens united buying congress?
Everyone gets thrown from the plane to maintain altitude
February 28th, 2016 at 9:55:21 PM permalink
Pacomartin
Member since: Oct 24, 2012
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Quote: petroglyph
"The "market" wants to give governments money now and then get less money back 10 years later? REEEEEEEEEEEEALLY?" YES. IF "market" = banks.


In July 2009, Sweden's central bank, the Riksbank, set its policy repo rate, the interest rate on its one-week deposit facility, at 0.25%, at the same time as setting its overnight deposit rate at -0.25%. As I said earlier, they set the repo rate at zero about 490 days ago, and started in negative numbers . So the overnight deposit rate keeps going lower and lower into negative territory.

Possibly in anticipation of low or negative interest rates, the cash in circulation peaked in Sweden at the beginning of 2008 at about equivalent of US$1800 per capita.


A 500-kr banknote is worth about $60, and a 1000-kr banknote is worth about $120. Currently the Swedish currency including coins is worth about $800 per capita, but it looks like the Riksbank is trying to destroy most of the 500-kr banknotes next.
Banknote Size Current millions of Swedish Crowns Maximum millions of Swedish Crowns
500 kr 46,121 kr 59,447 kr
1,000 kr 3,925 kr 48,358 kr
Small notes & coin 16,653 kr 18,953 kr

The rest of the world watched Sweden to see if there would be a revolt. Most Swedes under age 40 could care less. They see cash as something for old people. Sweden has done away with paper checks years ago, and they see the elimination of cash as the logical next step. There was not, so they began adopting these methods.

It is generally believed that retail customers will not accept negative interest rates if they are jammed in their face. You can always accomplish the same thing with banking fees.

Quote: AZDuffman
Just more food for thought that our latest monetary system, started 1965-1971, might well be reaching the end of its viability and something new will by necessity take it's place.


Hours of GDP (Banknotes and coin held by banks)
2010 2011 2012 2013 2014
31.3 31.7 33.4 30.6 27.8 Canada
28.3 30.9 28.9 23.2 32.9 United Kingdom
21.7 19.2 17.6 7.8 8.0 Sweden
36.5 40.8 42.9 42.8 44.8 USA
50.6 50.2 54.6 53.9 54.6 Euro

Days of GDP (Banknotes and coin in circulation outside banks)
2010 2011 2012 2013 2014
12.3 12.1 12.3 12.5 12.7 Canada
12.8 12.9 12.2 11.8 13.2 United Kingdom
9.9 9.1 8.8 7.9 7.4 Sweden
22.4 23.6 24.6 25.4 26.4 USA
47.5 50.7 47.5 50.5 52.9 Euro
February 28th, 2016 at 11:11:32 PM permalink
petroglyph
Member since: Aug 3, 2014
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Quote: Pacomartin
It is generally believed that retail customers will not accept negative interest rates if they are jammed in their face. You can always accomplish the same thing with banking fees.
They already accomplished the same thing with the printing press.

I remember as a young child my grandparents giving me some confederate money which at the time was worthless to me as I could not spend it. I foolishly discarded it, but it should have been a lesson. I get it now, and wish I would have kept the notes.
Everyone gets thrown from the plane to maintain altitude
February 29th, 2016 at 2:47:02 AM permalink
AZDuffman
Member since: Oct 24, 2012
Threads: 108
Posts: 8094
Quote: petroglyph


I guess that would be my complaint about citizens united buying congress?


What does Citizens United have to do with it?

See, this is the danger. It is at a macro central banking level yet people seem to want to blame one party or the other.
The man who damns money has obtained it dishonorably; the man who respects it has earned it