Posted on 02/04/2016 9:57:02 AM PST by Former Proud Canadian
The Fed may "seriously consider" negative rates after moving rates back to zero, reintroducing forward guidance and making "stronger pleas" to Congress for fiscal policy action as there are complications for money markets, according to BofAML strategist Mark Cabana.
This would not be a total surprise as Mises Institute's Joseph Salerno warns recent Fed commentary suggests they want to test-drive negative interest rates...
In 2016, the Fed's annual stress test on banks will include a scenario in which the interest rate on the three-month U.S. Treasury bill becomes negative in the second quarter of 2016 and then declines to -0.5%, remaining at that level until the first quarter of 2019. According to the Fed, "The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities." In other words, including this scenario in its stress test is not supposed to signal that the Fed is contemplating adopting a deliberate policy of negative interest rates. It is simply testing the resilience of big banks in the face of a severe recession that precipitates a "flight to safety" which spontaneously drives rates on short-term Treasury securities into negative territory. Or so they would have us believe.
Recent remarks by those associated with the Fed, however, seem to suggest otherwise. For example, former Fed official Roberto Perli, now a partner at Cornerstone Macro LLC, commented "It doesn’t signal anything" about future monetary policy, but then added, it is "another sign that the Fed would not be entirely adverse" to reducing its target rate below zero if economic conditions should warrant.
(Excerpt) Read more at zerohedge.com ...
Agree. Total disaster. ZIRP has already punished savers with effectively earning nothing for their money. Now they want to start confiscating money from anyone with a savings account? That would start an avalanche of withdrawals to the 1st Bank of Sealy.
Their remaining options are limited and not very good. They include: default, (hyper)inflation, devaluation of the currency, or crushing tax increases.
What? You mean no one wanted the liability of a bond on top of which you pay the bond issuer for the "privilege" of the bond liability? *Sheesh*
“Or sharply curtailing government.”
When the government is the one making the decision, that’s never an option.
We are already in a zero-rate environment. When you adjust for taxes and a couple of percent inflation, any “safe” instrument you can buy yields a negative return. This would just make it “official.” And, it would more than likely only apply to deposit/demand accounts.
I agree that a negative real rate (after inflation and taxes) robs savers, but we have it already.
I`d drive me to use Mason Jars and midnight holes in the back yard. P!ss on the banks.
Ask yourself the simple question “what Fed policy would be best for Democrats?” That is what they’ll do.
The result being people pull their money out in cash and keep it at home in the mattress or do what the government wants, spend it.
I can see as posted here in order for negative rates to work they have to ban or curtail the use of cash. This will take some time and will result in a return to barter services for services. These Ivy League “educated” fools have done more damage to the world in the last 35 yrs. than all the deadly diseases combined!
Nothing big will happen until Obama is out of office. He has so many minions in the federal bureaucracy they will wreak havoc if a republican wins.
We have Brazil and Venezuela as examples. If those countries go through their current financial reset without revolutions I will be surprised.
Next up are Japan and China.
Popular uprisings, aka revolution, tend to curtail government.
Currency with a depreciation and expiration date. Change out the issued script on a regular basis, such as was done to counter black market accumulation of currency post WWII until after 1973 Vietnam, known as the ‘military payment certificate’ (MPC). The changeover date was random and not announced, so anyone outside the system was left holding worthless paper.
If you did “buy” a negative rate bond isn’t this like uh, confiscation?
You can likely count on it by the end of the year.
New currency will be issued with expiration dates, the old currency banned, and there will be nowhere to hide other than real assets.
This is what makes Japan so interesting. They have reached the point where the only buyer for their bonds is the Bank of Japan. The market has determined that it would rather just hold on to the local currency at zero interest.
However, the Japanese government has to sell bonds to finance its deficit and to repay the bonds that are maturing. Raising rates to attract wealth is not possible. Kyle Bass says that at a rate of 2% the entire revenue of the Japanese government would go to interest payments on their debt. That is how dire the situation is.
Their only options are various forms of financial magic. All of them involve wealth confiscation by other means. So, they are one step away.
Ok, then gold, silver, platinum, palladium, copper... the list goes on.
Add that to paying people not to commit crimes.
We live in the United States of Calligula.
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