Free Republic

Negative rates are the destruction of money, an economic aberration based on the mistakes of many central banks and some of their economists who start from a wrong diagnosis: the idea that economic agents do not take more credit or invest more because they choose to save too much and therefore saving must be penalized to stimulate the economy. Excuse the bluntness, but it is a ludicrous idea.Inflation and growth are not low due to excess savings, but because of excess debt, perpetuating overcapacity with low rates and high liquidity and zombifying the economy by subsidizing the low productivity and...

If you’ve been gleaning financial headlines, you may be asking, what is this “inversion of the yield curve” thing and why is it so scary? An inverted yield curve marks a point on a chart where short-term investments in U.S. Treasury bonds pay more than long-term ones. When they flip, or invert, it’s widely regarded as a bad sign for the economy. Getting more interest for a short-term than a long-term investment appears to make zero economic sense. Go to any bank and you will likely get a lower interest rate on a 6-month CD than you would on a...

Negative interest rates are spreading like a virus. Central banks in the Eurozone, Switzerland, Sweden, and Japan all have below-zero policy rates. “NIRP,” as economists call a negative interest rate policy, is a desperation move—but the only move those central banks have. The Federal Reserve hasn’t followed—yet. When the next recession strikes, I believe Janet Yellen will choose to break the zero lower bound. The rationale was laid out in Jackson Hole. Look behind the headlines and you’ll see the Fed already preparing for NIRP. In theory, negative rates should encourage consumers and businesses to spend more freely and stimulate...

The global economy is heading for a storm as faith in policymakers dwindles, according to a stark warning from one of the world’s most respected financial institutions. The uneasy calm in financial markets last year has given way to turbulence, the Bank for International Settlements, known as the central bank for the world’s central banks, said in its latest quarterly report. Financial markets are losing faith in the healing power of central banks and their latest policy weapon - negative interest rates - to boost the world's main economies, the bank said.

As recession fears mount in the U.S., Fed Chair Janet Yellen conceded there's a "chance" of a downturn ahead. Asked by Republican Sen. Bob Corker whether the monetary policy-making Federal Open Market Committee would consider going to negative interest rates, which would entail charging banks to store reserves at the Fed, Yellen left the door open. She repeated a statement she said Wednesday that the Fed had considered negative rates in 2010 but decided that wouldn't be the best course at that time. "We wouldn't take those off the table, but we have work to do to judge whether they...

One of the most surprising comments this year came from a closed session on fintech where I sat next to someone in policy circles who argued that we should move quickly to a cashless economy so that we could introduce negative rates well below 1% – as they were concerned that Larry Summers' secular stagnation was indeed playing out and we would be stuck with negative rates for a decade in Europe. They felt below (1.5)% depositors would start to hoard notes, leading to yet further complexities for monetary policy.

The Federal Reserve started raising official interest rates in December. But in the stress tests that large U.S. banks have to undergo, the central bank is hypothesizing that short-term Treasury yields could drop below zero. The European Central Bank and, since Friday, the Bank of Japan are trying it with policy benchmarks. Though negative U.S. interest rates are for now only in the Fed's worst-case scenario, they are becoming a plausible downturn assumption.

So It Begins: Bloomberg Op-Ed Calls For An End Of Cash http://www.zerohedge.com/news/2016-01-31/bloomberg-op-ed-calls-end-cash So It Begins: Bloomberg Op-Ed Calls For An End Of Cash Submitted by Tyler Durden on 01/31/2016 In a moment of curious serendipity, a little over 90 minutes after we showed what a dystopian, centrally-planned, cashless society unleashed in a negative interest rate world would look like ("by forcing people and companies to convert their paper money into bank deposits, the hope is that they can be persuaded (coerced?) to spend that money rather than save it because those deposits will carry considerable costs"), and briefly after we...

As the market now diligently calculates the suddenly surging odds of a December rate hike, here's Yellen with a preview of what will happen once the rate hike cycle is aborted... YELLEN SAYS IF OUTLOOK WORSENED FED MIGHT WEIGH NEGATIVE RATESYELLEN SAYS NEGATIVE RATES COULD HELP ENCOURAGE BANKS TO LEND ... just as it was aborted in Japan in August of 2000 when the BOJ also decided to send a signal how much stronger the economy is by hiking 25 bps, only to cut 7 months later and to proceed to monetize not only all net Japanese debt issuance...

Jim EdwardsOctober 28, 2015 Sweden is shaping up to be the first country to plunge its citizens into a fascinating — and terrifying — economic experiment: negative interest rates in a cashless society. The Swedish central bank held its benchmark interest rate at -0.35% today, the level it has been at since July. Although retail banks have yet to pass on that negative to rate to Swedish consumers, the longer it's held there the more financial pressure there is for banks to pass the costs onto their customers. That's a problem because Sweden is the closest country on the planet...

King Bloomberg has decreed FR cannot post text of His material. Here's the link.