What Can One Expect from Negative Interest Rates?

[piezoe]

This trader believes that markets are constantly seeking equilibrium.

Interestingly, this is an idea popularized by textbook economic theory, that some think is quite wrong. Soros is one who thinks it is wrong. [see the Soros lectures at the Central European University, Amazon.]

 

[Cswim63]

Interestingly, this is an idea popularized by textbook economic theory, that some think is quite wrong. Soros is one who thinks it is wrong. [see the Soros lectures at the Central European University, Amazon.]

well I tend to agree with Soros too, in that reflexivity doesn't always affect the markets. I think they try to find equilibrium, but never achieve it. You can see it better in volume profile, where markets gravitate towards previous value areas. It just seems that right now debt is way out of balance and has been for a long long time. Discouraging people from putting their money in the bank won't necessarily correct that problem, to the extent that savings are opposite debt.

 

[ETcallhome]

what's good for me isn't neccessarily good for the economy. If everybody lived like me we would be in a worldwide depression. I'm debt free and you just can't hardly get me to buy anything. I trimmed my trading acccount way down in 2016 and that money is just sitting in cash. And no matter how negative rates go they just can't make me do anything with that money.

 

[Tsing Tao]

No, that's not to be inferred from what I wrote. One of the consequences of monetizing is inflation . The new debt has not been significantly monetized, up to this point anyway, as evidenced by first a weakening dollar with virtually zero inflation, and now a strengthening dollar with little inflation.. In any case monetization is not something determined by central bank policy, it is something forced on the central bank by fiscal policy.

It can be forced on the central bank through fiscal policy, true, or it can enable the government to spend more through taking on more debt at a much lower interest rate. The latter is what we have. Additionally, you and I have argued whether this is "printing" before, and I've shown you that Bernanke himself has admitted to the fact that the Fed was printing money. But you somehow think you are more accurate than the former head of the Federal Reserve.

Monetary and bank regulatory policy is supposed to be dictated by economic conditions. The Central Bank has wide latitude in how control of monetary policy is implemented. There are good examples where it is known, after the fact, that the central bank erred in setting policy.

Actually, there are plenty examples. It's more the rule than the exception.

One such very prominent example would be the CB's reaction to the Great Depression, and another would be policy leading up to the 2008 Great Recession. It is clear now that the central bank played a major role in making the Great Depression worse, and in causing the Great Recession. In the case of the recent Great Recession, they had the authority and the tools to head off financial system breakdown well before a crisis developed. The Fed Chairman, however, was an adherent to the philosophy of objectivism, i.e. "the proper moral purpose of one's life is the pursuit of one's own happiness (rational self-interest), [and] that the only social system consistent with this morality is one that displays full respect for individual rights embodied in laissez-faire capitalism ". The Chairman did not believe in regulation of the financial markets; he was certain they would self-correct relatively harmlessly. He believed markets far from equilibrium would spontaneously return to equilibrium if left alone. He was the chief regulator, and he intentionally failed to regulate because even though he was well aware of market and banking excesses and abuse of mortgage underwriting standards, he so firmly believed in the hands off approach that he did nothing to correct the situation. He later recanted of course, and admitted he had been wrong not to have acted..

This is the first I've ever seen you lay the blame for the 2008 crisis at the feet of the Federal Reserve. Maybe there is hope for you yet.

 

[Tsing Tao]

I am not going to take the time to do that, but there are many studies you can refer to. Just the huge number of GM and its many subsidiaries and suppliers' employees alone resulting from GM going out of business would have been massive; not to mention all of the additional jobs that would have been lost, and consequent follow on calamities that would have been caused, in the financial and insurance sector, had that sector not been largely rescued. It was bad enough as it was. Please refer to the numerous economic studies available to you.

I've asked you to show this before and you dodged as well. The government has no right to determine winners and losers in the business world. Allowing GM to fail would have resulted in lost jobs, but a more efficient company down the line. It is well established that the labor union support was the reason the government stood behind GM.

As for the "numerous studies" that show how the Fed can directly influence unemployment, please show me one that you feel states your case, and let's debate it.

There is a very good reason why the Fed influencing employment is referred to as "pushing on a string", and why it is one of the only central banks in the world with the mandate to consider full employment while other stated charters for large banks looks only at price stability. I'm sure you're aware of when Congress decided to pawn the responsibility for employment on the Fed so they didn't have to be responsible for it.

 

[piezoe]

But you somehow think you are more accurate than the former head of the Federal Reserve.

If I recall correctly, Berbanke said, "in effect", or "esentially", "yes". In other words there was a qualifier there. I would rather put it this way: Bernanke knows as much as I do about this topic. We are on the same wavelength in regard to the difference between actual printing and QE. Had he the opportunity, he would, I'm sure, want to change is vocabulary slightly, so as not to mislead you.

 

[piezoe]

... It's more the rule than the exception.

I disagree.

 

[piezoe]

This is the first I've ever seen you lay the blame for the 2008 crisis at the feet of the Federal Reserve. Maybe there is hope for you yet.

I have steadfastly maintained this position and there are numerous posts of mine to back me up. But of course Greenspan had help from Wall Street and the Mortgage Industry.

 

[piezoe]

...but a more efficient company down the line.

The topic was whether QE as worthwhile.

I've asked you to show this before and you dodged as well. The government has no right to determine winners and losers in the business world. Allowing GM to fail would have resulted in lost jobs, but a more efficient company down the line. It is well established that the labor union support was the reason the government stood behind GM.

As for the "numerous studies" that show how the Fed can directly influence unemployment, please show me one that you feel states your case, and let's debate it.

There is a very good reason why the Fed influencing employment is referred to as "pushing on a string", and why it is one of the only central banks in the world with the mandate to consider full employment while other stated charters for large banks looks only at price stability. I'm sure you're aware of when Congress decided to pawn the responsibility for employment on the Fed so they didn't have to be responsible for it.

Your personal philosophy I find to not be very sensible. My previous post regarding how the government raised money without putting upward pressure on rates, via QE, and how the money raised was used for such things as stimulus and TARP, was sufficiently clear to most. For anyone to claim that QE did not accomplish anything is silly.

 

[der_kommissar]

The topic was whether QE as worthwhile.

Your personal philosophy I find to not be very sensible. My previous post regarding how the government raised money without putting upward pressure on rates, via QE, and how the money raised was used for such things as stimulus and TARP, was sufficiently clear to most. For anyone to claim that QE did not accomplish anything is silly.

That's a cute way of looking at it...More to the point is whether QE was anything more than an immediate and desperate fix for a system that was coming apart at the seams...So it bought us a few more years at an enormous cost to future generations...Of course you are perfectly ok with this as are all the liberal baby-boomer's who feel that it is their God given right to enjoy permanent asset inflation.