Wednesday, August 31, 2016

Negative Rates Driving Tomorrow's Crisis #NIRP #ZIRP

Denial destroys common sense.

Central banks, supported by governments despite to stimulate economies, can, in theory, keep rates zero to negative as long as they're willing to buy an asset with little to no private sector demand. The stimulation game that clearly has no end has turned central banks into the largest holders of bonds that few other than the truly desperate want. What happens if central banks, either by choice or force, can no longer buy bonds? Growing illiquidity that few recognize would manifest itself into a full blown crisis with falling bonds prices as the majority panics.

Do negative rates work in today's world? For now, yes. Later, no. Few will remember or cite this article when yes transitions to no.

Headline: Fed’s Fischer Says Negative Rates Seem to Work in Today’s World

Federal Reserve Vice Chairman Stanley Fischer said negative interest rates seem to be working in other countries, while reinforcing that they aren’t on the table in the U.S. While the Fed isn’t “planning to do anything in that direction,” the central banks using them “basically think they’re quite successful,” Fischer said Tuesday on Bloomberg Television with Tom Keene in Washington. He reiterated that Fed rate increases will be data dependent without giving a specific timeline.



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