The Fed's Bond Bubble Doomsday Machine

[g5000]

If interest rates go negative, people will start hoarding cash instead of depositing in a bank where they have to pay the bank to hold it.

We'll be stuffing mattresses again, and that's deflationary.

 

[g5000]

Japan and quite a few European countries have already instituted negative interest rates.

And the hoarding has begun.

Safes Sell Out In Japan, 1,000 Franc Note Demand Soars As NIRP Triggers Cash Hoarding

Japanese Seeking a Place to Stash Cash Start Snapping Up Safes


This suggests the Fed's call to get rid of the $100 bill has an entirely different motive than their public reasoning that its about fighting drug dealers.

It's harder to hoard smaller bills.

 

[Uncensored2008]

The Fed needs to stop avoiding pain. Pain avoidance just makes the next downturn bigger.

When a bunch of banks fuck up, they need to pay the price. If they don't, they won't change their ways. It's called moral hazard.

And, sure enough, the banks have not changed their ways. They continued their fraud unabated after being rescued and allowed to live. ISDAfix fix, LIBOR fix, etc.

And yes, the bond bubble has a potential risk of dwarfing the last crash. Instead of talking about banks that are Too Big To Fail, we will be talking about Too Big To Save.

Does the Fed know this? Some at the Fed might, but most are just as deluded as they were during the last bubble.

The people in the Fed go to cocktail parties with the execs of the big banks. They invest in the same schemes with them. The execs of the big banks will end up in the Fed.

That the Fed will rape the nation to benefit their close friends should be no surprise to anyone. As you said at the outset, when the Fed creates currency, it devalues the existing currency. If you have 100 shares of a company that has 1000 shares of common stock, and that company issues 1000 more shares, what happens to the value of your stock? The same holds true of currency. More dollars chasing the same pool of goods and services must reduce the value of each dollar. When the fed pumps $3 Trillion into JP Morgan - Chase, BofA, and Goldman Sachs, that money comes from the pockets of the average American. Anyone wondering why the gap between the "1%" and the rest is widening, this is your answer.

 

[Uncensored2008]

If interest rates go negative, people will start hoarding cash instead of depositing in a bank where they have to pay the bank to hold it.

We'll be stuffing mattresses again, and that's deflationary.

Difficult to do when over half of the cash in the nation exists only in electronic form.

 

[g5000]

If interest rates go negative, people will start hoarding cash instead of depositing in a bank where they have to pay the bank to hold it.

We'll be stuffing mattresses again, and that's deflationary.

Difficult to do when over half of the cash in the nation exists only in electronic form.

In one of the links, it explains that more cash is going to have to be printed when people start taking their money out of the bank.

 

[g5000]

If you have 100 shares of a company that has 1000 shares of common stock, and that company issues 1000 more shares, what happens to the value of your stock?

That's exactly the damage stock options caused. Stock options became all the rage when the government changed the income tax rules for CEOs. And the end result was a big watering down of stocks due to the issuance of stock options to business execs.

But I digress.

 

[g5000]

First there was ZIRP. Now the Fed has a new and improved formula!

NIRP. Coming soon to your neighborhood.

Negative Interest Rates Test Technology at European Banks

From Sweden to Spain, banks, brokers and other financial firms are grappling with technical and legal glitches thrown up by negative rates, forcing them to redesign computer systems, tear up spreadsheets and redraft legal contracts.

The issue echoes the scrambles around the Year 2000 computer bug and the launch of the euro, when some bank systems couldn’t handle the introduction of a new currency, said Kevin Burrowes, head of U.K. financial services at PricewaterhouseCoopers. A handful of malfunctioning computer programs can cause “huge problems,” while working around problems manually makes more controls necessary and increases the risk that something could go wrong, Mr. Burrowes said.

 

[EdwardBaiamonte]

The Fed needs to stop avoiding pain. Pain avoidance just makes the next downturn bigger.

When a bunch of banks fuck up, they need to pay the price. If they don't, they won't change their ways. It's called moral hazard.

And, sure enough, the banks have not changed their ways. They continued their fraud unabated after being rescued and allowed to live. ISDAfix fix, LIBOR fix, etc.

And yes, the bond bubble has a potential risk of dwarfing the last crash. Instead of talking about banks that are Too Big To Fail, we will be talking about Too Big To Save.

Does the Fed know this? Some at the Fed might, but most are just as deluded as they were during the last bubble.

The people in the Fed go to cocktail parties with the execs of the big banks. They invest in the same schemes with them. The execs of the big banks will end up in the Fed.

That the Fed will rape the nation to benefit their close friends should be no surprise to anyone. As you said at the outset, when the Fed creates currency, it devalues the existing currency. If you have 100 shares of a company that has 1000 shares of common stock, and that company issues 1000 more shares, what happens to the value of your stock? The same holds true of currency. More dollars chasing the same pool of goods and services must reduce the value of each dollar. When the fed pumps $3 Trillion into JP Morgan - Chase, BofA, and Goldman Sachs, that money comes from the pockets of the average American. Anyone wondering why the gap between the "1%" and the rest is widening, this is your answer.

Fortunately the mandate of the Fed is to not inflate the currency so that is now the least of our problems.

 

[g5000]

no idea why you think negative interest rates are so bad?? Can you tell us??

Aside from the reasons I have already given, here's another one.

Pension funds of all kinds assume future investment returns will average about 8 percent, and they determine contributions to those funds 20 years out accordingly.

With negative interest rates, there will be catastrophic pension fund shortfalls. They are already seriously underfunded, and negative interest rates will cause a lot of private and public defaults.

If that's not a bad enough hit to seniors, their life savings will also begin to be drained by negative interest rates. ZIRP is already creating weak dividends on their savings as it is. NIRP will wipe them out.

 

[EdwardBaiamonte]

Aside from the reasons I have already given, here's another one.
.

I think you are missing the point. Everyone would want normal interest rates including the world's central banks but low interest rates are the current policy given liberal socialist GDP growth rates around the world. Raising rates to 6% would probably cause a depression in this environment so we are stuck here and could stay stuck just as Japan has for 3 decades now.

 

[g5000]

Aside from the reasons I have already given, here's another one.
.

I think you are missing the point. Everyone would want normal interest rates including the world's central banks but low interest rates are the current policy given liberal socialist GDP growth rates around the world. Raising rates to 6% would probably cause a depression in this environment so we are stuck here and could stay stuck just as Japan has for 3 decades now.

Classic pain avoidance rationalization which ultimately only makes matters much worse.

 

[EdwardBaiamonte]

Aside from the reasons I have already given, here's another one.
.

I think you are missing the point. Everyone would want normal interest rates including the world's central banks but low interest rates are the current policy given liberal socialist GDP growth rates around the world. Raising rates to 6% would probably cause a depression in this environment so we are stuck here and could stay stuck just as Japan has for 3 decades now.

Classic pain avoidance rationalization which ultimately only makes matters much worse.

Don't be absurd, Japan has had low or negative rates for 30 years and no doomsday just 2% growth which defeats your whole doomsday illiteracy.

 

[g5000]

Aside from the reasons I have already given, here's another one.
.

I think you are missing the point. Everyone would want normal interest rates including the world's central banks but low interest rates are the current policy given liberal socialist GDP growth rates around the world. Raising rates to 6% would probably cause a depression in this environment so we are stuck here and could stay stuck just as Japan has for 3 decades now.

Classic pain avoidance rationalization which ultimately only makes matters much worse.

Don't be absurd, Japan has had low or negative rates for 30 years and no doomsday just 2% growth which defeats your whole doomsday illiteracy.

You are an incredibly ignorant fool if you think Japan has not been struggling.

Why Japan Keeps Falling Into Recession

 

[g5000]

Denmark’s new rules on cash mark the beginning of the end for physical money

Thousand-franc note is a hidden treasure - SWI swissinfo.ch

European banks prepare for worst, hoard cash

Hoarding of Cash Doubles in Switzerland

 

[g5000]

Get ready to be showered by helicopter money

It turns out that wasn’t enough. For economies that didn’t respond to zero rates, central banks tried negative rates instead. The Swiss introduced them, and so did the Swedes, and then the European Central Bank followed the lead,cutting its rates below zero. All of a sudden a through-the-looking-glass economy was created, where the bank actually charged you for keeping money with it.

The trouble is, it didn’t work either. Its main impact has been to destroy the profitability of the banking system, which was hardly a great way to improve the economy. And central bankers realised it could only be effective if they banned cash – because of course that doesn’t pay a negative rate of interest.

 

[g5000]

You can smell the desperation of the central bankers in the air.

Should you hoard cash? We wrote about this here and here last week. But there’s been a new development in Denmark.

The Danish government is concerned that cash puts too many “administrative and financial burdens” on shops and that it acts as a drag on GDP growth. (A McKinsey study recently suggested that if you could get rid of the stuff in the US, you could push up America’s total GDP by 0.47%.) So, as part of a wide group of proposals to boost economic growth, it is to allow shops to stop taking cash.

Denmark’s new rules on cash mark the beginning of the end for physical money

 

[EdwardBaiamonte]

You are an incredibly ignorant fool if you think Japan has not been struggling.

dear, they struggle in Africa not in Japan. Do you understand?

 

[g5000]

You are an incredibly ignorant fool if you think Japan has not been struggling.

dear, they struggle in Africa not in Japan. Do you understand?

Holy shit. You just get dumber and dumber.

 

[EdwardBaiamonte]

You are an incredibly ignorant fool if you think Japan has not been struggling.

dear, they struggle in Africa not in Japan. Do you understand?

Holy shit. You just get dumber and dumber.

dear, they struggle in Africa not in Japan. Do you understand?

 

[g5000]

As I have pointed out in years past, contrary to what many people believe, insurance companies don't make their profits from premiums. They make their money by investing the premiums.

So what happens when interest rates go negative, like they are in Europe?

Germany: Where Negative Rates Are Lethal

German life insurers are caught in a pinch that could eventually threaten their survival. Regulators are forcing them to boost capital levels at the same time that low rates make it hard to make money with their investments.

The question is how long before the ride gets bumpy enough to shake out the weakest firms.

German regulators are so concerned about the impact of negative interest rates on the country’s life insurers that they have said they can only be sure the sector is safe through 2018. Even today, half the industry would be short of capital without the help of special measures.