Is U.S. Heading for Negative Rates?

[errolanderson]

http://www.marketwatch.com/story/fed-officials-seem-ready-to-deploy-negative-rates-in-next-crisis-2015-10-10

The likelihood of the U.S. Fed actually decreasing rates into negative territory appears gaining traction, especially should the U.S. economy turn recessionary in 2016.

Fed rhetoric about rate hikes appears totally off-base considering the reality of slowing global economic growth (IMO).

[boarderbloke]

Shouldn't that signal another leg up for equity markets?

[cottonpicken]

Technically they are already negative. I think it will be clandestine and they will be bid into negative territory but with all the treasuries being dumped on the market as we speak makes we wonder. Quite the tight rope announcing a nother round of qe and its effect. Not enough money in the world to buy all roll over in soverign debt. Lots of maturities on the short end of the curve now. 7 years of zirp and we are worrying about head dresses. Somebody please show me the math so i dont have to think about it anymore.

[rockpile]

Heh, heh, heh, Cotton. If you could only have a legal bong, some orange crush with vodka in it and a bag of Doritos, you wouldn't worry about all this shit! Totally out of our hands and control. Better not to think about it and I agree, why are we so occupied with cultural dress? I wasn't growing up in the Great Depression, never sent to war - life has been good!

[errolanderson]

boarder . . . yes and no . . . the gig-is-up on equity markets too.

[Hopalong]

Errol, is there precedent for negative interest rates?
If so, what were experiences?

[errolanderson]

Hopalong . . . Japan 1990s . . .

This is about the time that Bill Clinton stated that every American deserves a house . . . the beginning of this runaway U.S. mortgage crisis in my mind. To me, this political statement was 'ground zero'.

Cotton, broader, ail, you have to help me out because this is a tough question.

Exceptionally low interest rates will be here for years ahead. Japan battles stagflation . . . little to no growth with inflationary pressures. U.S. is battling this as well in certain areas . . . New York real estate, art, classic cars etc . . . prices going through the roof. That bubble will burst (IMO). But income inequality worsens thanks to Fed policies i.e. QE.

My frustration is from U.S. Fed governors and politicians stating they want rates to normalize. The fact that they use the word 'normalize' suggests the U.S. doesn't grasp the reality of the global economic situation.

To me, the U.S. Fed is doing a really bad job of communicating with investors and markets. For Yellen to ham up rate hike talk right now is ridiculous (IMO).

The U.S. may not be hiking rates in 2016, they may be battling a recession. The Fed is really out-of-sync likely from pressure from Wall Street banks. Bankers definitely want higher interest rates. The spread needs to widen.

Time for me to shut-up . . . .

[Hopalong]

After asking question, looked it up on Internet.
Did not see reference to Japan but that no major economy had tried it and result was not predictable.
Some feeling that it would not be popular, especially at outset.

[cottonpicken]

Personally i just view it as a whole bunch of overlapping circles with every circle effecting the others in some way and no i dont have it figured out just a big weird hobby wish I could draw on here just have to use point form.

-I believe its impossible to normalize because the system can not handle it

-trillions in total debt,interest cost payments would go through the roof

-asset values would collapse,non performing loans would sky rocket,GDP and tax revenues would collapse just when we need them most

-banks would go under,their tier one reserve ratios are a joke,they are to leveraged

-bond prices would crater especially on the long end of the yield curve,the only hope would b the gain in the currency appreciation

-dervitaves,that's a horror story,they 100-200x global GDP,obviously those insurance contracts could never be paid out,so all confidence would be lost the panic it would cause would be unimaginable

-i dont blame the fed as much per say,they where forced to act seven years ago. The whole system seriously almost went under.

-five years before that I knew they would have to monetize at some point and then I thought the jig would be up and default and restructure through the various avenues would come. Silly me.

-credible rumours are now saying we are headed into an IMF/world bank/bis(bank of international settlements) scenario where the sdr(special drawng rights)type system is going to be put in place and the aiib(Asian infrastructure investment bank)and the other one i having a brain fart on will basically go along with it and disolve(those systems where relatively new to bypass the current one set up in 1944 under bretton woods)but.........

-china was rescently turned down a bigger role in the IMF

-the tpp is just to weird geopolitically

-the middle east is going crazy

-a bipolar world seems more and more likely everyday

So who the hell knows

[errolanderson]

Europe is also negative right now.

[biglentil]

You mean the federal reserve or U.S? The Fed controls the dollar and is a 100 percent private entity. Going negative on the interest rate will further cement its collapse as reserve currency. Luckily for them they may want that as they hold 70 percent of the worlds gold offshore.

[farmaholic]

Why was it allowed to get that bad previous to the 08 crisis. Wasn't anyone watching?

This is beyond my comprehension and almost **** all we can do about it anyway.

So now what? Thank goodness most of my assets are land. Unless that won't even be safe.

[biglentil]

Dont worry farma im sure the roving gangs of looters will respect land titles. lol

[errolanderson]

If the Fed goes negative within the year, this will force banks to lend aggressively as holding money becomes a huge liability. This may force more risky lending decisions.

But if it hikes rates and markets don't do well, emerging market contagion could hit U.S. shores intensifying economic contraction.

The Fed now has to pick its poison.

[farmaholic]

biglentil: "Lock and Load" !!! I'm going to live with Braveheart.

Errol, just who is squirreling so much money away in cash deposits? I assume money invested in equities will be immune from negative interest? So retirees with cash deposits will get punished, nice, here's how the system pays you back for a lifetime of trying to save and take care of yourself. Oh, just dump it into the market and "hope" you can maintain the principle!!

Who are the banks going to lend money to? The people already living on the loan cliff edge? Retired people on fixed incomes? Minimum wage earners who are barely making enough for basic living needs? Immigrants without equity?

House of cards...