SNB price fixing it's currency and the Fed stating a target price on the long end of the curve are not analogous. Also, they rarely use paper and ink. The vast majority of the time they simply type numbers into a computer.
What Effect Could a Negative Interest Rate Have Over an Economy?
- Thread starter Ituglobal
- Start date
that's good to know. I would hate to think our whole economy is based on two commodities like paper and ink. As long as we don't have a computer chip shortage we should be ok.
Yes but I am trying to fix it as I get older.
"They are trying to inflate not deflate."
Inflation is supposed to come from QE. However, that has not occurred as you pointed out. QE has failed. The issue is the size of the bond bubble and the need to exponentially increase bonds to attempt to keep the current monetary system going. At the very least we have a slowdown in the rate of inflation AKA disinflation.
There is simply not enough growth to increase borrowing to keep the game going. Also, in a socialist society, the more people that "expect" handouts, the less growth. Government growth is not the same as economy growth. Every bond is owned by someone who expects either an income stream or return of their capital. To earn an income stream, the money supply must be made bigger and that is done by creating yet more bonds. When the first person is not paid, that deflation portion will appear.
Inflation is supposed to come from QE. However, that has not occurred as you pointed out. QE has failed. The issue is the size of the bond bubble and the need to exponentially increase bonds to attempt to keep the current monetary system going. At the very least we have a slowdown in the rate of inflation AKA disinflation.
There is simply not enough growth to increase borrowing to keep the game going. Also, in a socialist society, the more people that "expect" handouts, the less growth. Government growth is not the same as economy growth. Every bond is owned by someone who expects either an income stream or return of their capital. To earn an income stream, the money supply must be made bigger and that is done by creating yet more bonds. When the first person is not paid, that deflation portion will appear.
Seems to me that the - rates in the euro area are "taking them down to take them up later."
The down leg is a very profitable trade for those who are long euro sovereign debt with borrowed euros. The ECB has told the traders they will provide the monthly liquidity to close this trade. Ths front running of the ECB has been going on since last summer.
Stocks , maybe, wont sell off too badly due to anticipating the ECB asset purchase program.
Most of the ECB desired depreciation in the euro is possibly discounted before asset purchases begin.
The desired end result seems to be similar to the "whatever it takes" scenario.....A currency,
interest rate and equity rally.
Will inflation and growth respond?
Seems to me the - rate is the ECB waiting too long. I dont know if -rates matter. It should naturally deter further bond buying but the central bank manipulation and distortion seems to be overwhelming.
I wonder what the effect of ECB QE will have on sovereign credit spreads between US and euro core. Maybe another global central bank induced rally where US treasuries sell and US yields rise as well.
Or, will euro QE have Japanlike results? I think this will be the case as the ECB balance sheet is slated to rise to only 2012 levels.
Deflation and inflation are constructs of central banks and manipulated. I doubt people are delaying purchases and hoarding cash.
Seems the game is to get traders to behave in the desired, rational way.
The down leg is a very profitable trade for those who are long euro sovereign debt with borrowed euros. The ECB has told the traders they will provide the monthly liquidity to close this trade. Ths front running of the ECB has been going on since last summer.
Stocks , maybe, wont sell off too badly due to anticipating the ECB asset purchase program.
Most of the ECB desired depreciation in the euro is possibly discounted before asset purchases begin.
The desired end result seems to be similar to the "whatever it takes" scenario.....A currency,
interest rate and equity rally.
Will inflation and growth respond?
Seems to me the - rate is the ECB waiting too long. I dont know if -rates matter. It should naturally deter further bond buying but the central bank manipulation and distortion seems to be overwhelming.
I wonder what the effect of ECB QE will have on sovereign credit spreads between US and euro core. Maybe another global central bank induced rally where US treasuries sell and US yields rise as well.
Or, will euro QE have Japanlike results? I think this will be the case as the ECB balance sheet is slated to rise to only 2012 levels.
Deflation and inflation are constructs of central banks and manipulated. I doubt people are delaying purchases and hoarding cash.
Seems the game is to get traders to behave in the desired, rational way.
Last edited: