Sunday, January 31, 2016

Negative Interest Rates

Negative Interest Rates - Bloomberg QuickTake:

This past Friday, Japan took their interest rates negative and world markets reacted positively. Europe has been doing this for a year and a half now, even though Japan has been in economic recession for over a quarter of a century now and is possibly more desperate than Europe.
The move came 1 1/2 years after the European Central Bank became the first major central bank to venture below zero. With the fallout limited so far, policy makers are more willing to accept sub-zero rates. The ECB cut a key rate further into negative territory Dec. 3, even though President Mario Draghi earlier said it had hit the “lower bound.” It now charges banks 0.3 percent to hold their cash overnight. Sweden also has negative rates, Denmark used them to protect its currency’s peg to the euro and Switzerland moved its deposit rate below zero for the first time since the 1970s. Since central banks provide a benchmark for all borrowing costs, negative rates spread to a range of fixed-income securities. By the end of 2015, about a third of the debt issued by euro zone governments had negative yields. That means investors holding to maturity won’t get all their money back.
Even the linked Bloomberg article has no trouble pointing out that negative interest is DESPERATION!
Negative interest rates are a sign of desperation, a signal that traditional policy options have proved ineffective and new limits need to be explored. They punish banks that hoard cash ...
In case some US folks have the idea that "it can't happen here" ...
Janet Yellen, the U.S. Federal Reserve chair, said at her confirmation hearing in November 2013 that even a deposit rate that’s positive but close to zero could disrupt the money markets that help fund financial institutions. Two years later, she said that a change in economic circumstances could put negative rates “on the table” in the U.S. Deutsche Bank economists note that negative rates haven’t sparked the bank runs or cash hoarding some had feared, in part because banks haven’t passed them on to their customers.
We have a STRANGE situation going on.

It appears that "make sure you have a stockpile of food, water and ammo" situation that we suspected might happen in 2009 is returning for a fresh visitation!

'via Blog this'

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