The Hellish Philosophy of Negative Interest Rates

[Bill Wiltrack]

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It appears as Competitive Devaluation when individual countries devalue their currencies to gain a temporary advantage in international export markets.

This economic tool is a last resort that actually encourages more stable economies to participate or to loose out on future international yields.

It's the same kind of mentality that forced the international race to the bottom with workers' wages & benefits that has been happening over the past 35 years. ALL economies are forced to participate.

This horrific tool is now being used in conjunction with Negative Interest Rates.

The insanity of Negative Interest Rates is that an interest rate is actually paid by a lender to a borrower rather than the other way around. Negative interest rates may occur when the interest rate is below the inflation rate, or when the lender actually pays the borrower more. Negative interest rates occur during periods of high volatility.


A common axiom in the economic universes is - Negative Interest Rates DO NOT have a positive outcomes.




Today's Latest sell-out:

UK govt just sold £1.25bn of 10yr index linked (eg inflation proof) bonds at an interest rate of -1.578%


Yes, minus



...this isn't going to end well...


I suspect that the world will be in for a HUGE economic disruption/depression shortly after the Presidential elections in the United States.


This economic storm will be characterized by the total elimination of any type of value relating to existing fiat currencies.







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[Philosophy Explorer]

Bob should like this one.

PhilX

[bobevenson]

It is in the best interests of every country to let the free market determine interest rates. Governments that tamper with interest rates to increase exports should be given thank-you cards by the other countries.

[Necromancer]

Remember that the Central Banks around the World meet to avoid (complete) chaos! Also, the credit rating may be indicative here. A nation can't export all of its assets either way and may need "resources" to import certain goods! Yes?

[Bill Wiltrack]

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Think we're in too deep to fantasize about a time where the International Monetary Fund doesn't have a hand in setting international commerce or multi-national banks don't scoop-up government bonds & such.


There is no doubt that ALL of us are playing in this game. Even if we have not individually signed-up.


The concept of corporations have stripped the emerging international worker/citizen naked.

Now this concept of corporation is about to separate our meat from our bones.


...oh, and there is no easy way out...


...so, there's that.






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[Necromancer]

Aren't we on our way to 6-hour working days and 4 days' weeks, plus 5 weeks of vacation rights, plus the HES-requirements at the workplace. The world is getting better and better...?

[Bill Wiltrack]

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When you say we - what country are you living in?


In my country, America we are witnessing the evaporation of living wages, the elimination of ANY type of working benefits or protections, and pensions are all but non-existent.





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[Necromancer]

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When you say we - what country are you living in?

In my country, America we are witnessing the evaporation of living wages, the elimination of ANY type of working benefits or protections, and pensions are all but non-existent.

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Aaaaarrrgggghhhh, then I understand your pessimism. I've heard on Bloomberg that one expects the 4-day workweek to be coming as they speak of robots replacing workers. But be optimistic, Capitalists get no credence unless they employ real people so the full employment of people is also coming, with very low unemployment in the developed world.

[Bill Wiltrack]

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Kamal Ahmed
Economics editor
BBC News





It was initially described as an emergency measure, seven long years ago when UK interest rates were cut to 0.5%, a record low.
That was before the brutal significance of the financial crisis of 2008 had really sunk in.


And the growing realization that long-term monetary stimulus was necessary to heal the scars of a global banking crisis followed by a global economic crisis.

A year ago, there was the whiff of "normalisation". At that stage, with UK growth leading the developed world, most economists believed the next interest rate rise would be up. Mark Carney suggested as much as he guided market expectations.

Now, all eyes are on the Bank for the midday announcement by the Monetary Policy Committee. And, rather than up, most economists now predict the Bank will cut rates.

Economic uncertainty following the referendum result has increased the risk of recession, many economists argue, and the need for yet looser policy, not tighter.


One, Adam Posen of the Peterson Institute of International Economics, based in Washington DC, and a former member of the MPC, said the cut should be straight down to zero, rather than the 0.25% the market expects.

"They don't really have good choices at this point, so I think what they should do is cut rates to 0% in one fell swoop and thereby give shock and awe - [show] that they are prepared to stimulate the economy," he told me.

"I would say this with the caveat, that I'm sure the people in the MPC are very aware of, that doing this through a major pound move does have real risks of inflation rising and the Bank would have to be prepared to reverse this cut in the coming months or year."


'Go negative'

Sterling has fallen dramatically in value since 23 June, which reduces the price of exports (usually an economic good), but can also create inflation as imports become more expensive.

Mr Posen said the Bank should be willing to "go negative" on interest rates, despite Mr Carney's expressed reluctance to do so.

Negative interest rates can be bad for the UK's retail banks, as they tend to lower the amount of profit they can make on differential interest rates offered to borrowers and savers.

And if their profits dip, the amount of money they feel able to lend could also contract, which would not be good for the economy.


"It's my belief that the MPC is going to have to essentially 'back off' that opposition to negative rates," Mr Posen said.


"Especially given that other central banks are moving to negative rates."


Fiscal adjustments will also be needed, Mr Posen said, welcoming Theresa May's pledge that the government would no longer seek to eliminate the deficit by 2020.

That statement which opens the door to more borrowing rather than further public sector cuts and tax rises.

However, if the ultimate aim is to produce a budget surplus, as Mrs May suggests it is, then the bill will have to be paid at some point.

"I think - along with the vast amount of economic forecasters - you're going to have a real recession, you're going to go into negative growth of at least -1% over the next four quarters and probably past that to the end of 2017," Mr Posen said.


"Unemployment will rise, I hope by not very much. Both the fiscal deficit and the current account deficit will widen by a couple of percent of GDP.

"On the fiscal side, I'm very glad the new prime minister has made it clear that they're not going to respond to this with austerity - that would be a terrible mistake."



'Ahead of the curve'


The possibility of recession is supported by other economists, such as Rupert Harrison, George Osborne's chief of staff who now works for the global investment fund, BlackRock.

He told the BBC that the Bank should cut rates by 0.25% to get "ahead of the curve" before any downturn materializes.


Others say that the Bank, and many economists, should stop being so gloomy about Brexit.

Ashoka Moody, professor of international economics at Princeton University in the US, said that Mr Carney "should send a more encouraging message by holding back on monetary stimulus".

"Brexit's shadow is hard to discern amid the broader global decline in output growth and interest rates that began in early 2014," he told Bloomberg.
Any problems Britain may be facing are not unique, Prof Moody argued.

Many do not agree, describing Brexit as a self-imposed economic challenge.





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[Hobbes' Choice]

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Kamal Ahmed
Economics editor
BBC News





It was initially described as an emergency measure, seven long years ago when UK interest rates were cut to 0.5%, a record low.
That was before the brutal significance of the financial crisis of 2008 had really sunk in.


And the growing realization that long-term monetary stimulus was necessary to heal the scars of a global banking crisis followed by a global economic crisis.

A year ago, there was the whiff of "normalisation". At that stage, with UK growth leading the developed world, most economists believed the next interest rate rise would be up. Mark Carney suggested as much as he guided market expectations.

Now, all eyes are on the Bank for the midday announcement by the Monetary Policy Committee. And, rather than up, most economists now predict the Bank will cut rates.

Economic uncertainty following the referendum result has increased the risk of recession, many economists argue, and the need for yet looser policy, not tighter.


One, Adam Posen of the Peterson Institute of International Economics, based in Washington DC, and a former member of the MPC, said the cut should be straight down to zero, rather than the 0.25% the market expects.

"They don't really have good choices at this point, so I think what they should do is cut rates to 0% in one fell swoop and thereby give shock and awe - [show] that they are prepared to stimulate the economy," he told me.

"I would say this with the caveat, that I'm sure the people in the MPC are very aware of, that doing this through a major pound move does have real risks of inflation rising and the Bank would have to be prepared to reverse this cut in the coming months or year."


'Go negative'

Sterling has fallen dramatically in value since 23 June, which reduces the price of exports (usually an economic good), but can also create inflation as imports become more expensive.

Mr Posen said the Bank should be willing to "go negative" on interest rates, despite Mr Carney's expressed reluctance to do so.

Negative interest rates can be bad for the UK's retail banks, as they tend to lower the amount of profit they can make on differential interest rates offered to borrowers and savers.

And if their profits dip, the amount of money they feel able to lend could also contract, which would not be good for the economy.


"It's my belief that the MPC is going to have to essentially 'back off' that opposition to negative rates," Mr Posen said.


"Especially given that other central banks are moving to negative rates."


Fiscal adjustments will also be needed, Mr Posen said, welcoming Theresa May's pledge that the government would no longer seek to eliminate the deficit by 2020.

That statement which opens the door to more borrowing rather than further public sector cuts and tax rises.

However, if the ultimate aim is to produce a budget surplus, as Mrs May suggests it is, then the bill will have to be paid at some point.

"I think - along with the vast amount of economic forecasters - you're going to have a real recession, you're going to go into negative growth of at least -1% over the next four quarters and probably past that to the end of 2017," Mr Posen said.


"Unemployment will rise, I hope by not very much. Both the fiscal deficit and the current account deficit will widen by a couple of percent of GDP.

"On the fiscal side, I'm very glad the new prime minister has made it clear that they're not going to respond to this with austerity - that would be a terrible mistake."



'Ahead of the curve'


The possibility of recession is supported by other economists, such as Rupert Harrison, George Osborne's chief of staff who now works for the global investment fund, BlackRock.

He told the BBC that the Bank should cut rates by 0.25% to get "ahead of the curve" before any downturn materializes.


Others say that the Bank, and many economists, should stop being so gloomy about Brexit.

Ashoka Moody, professor of international economics at Princeton University in the US, said that Mr Carney "should send a more encouraging message by holding back on monetary stimulus".

"Brexit's shadow is hard to discern amid the broader global decline in output growth and interest rates that began in early 2014," he told Bloomberg.
Any problems Britain may be facing are not unique, Prof Moody argued.

Many do not agree, describing Brexit as a self-imposed economic challenge.





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Just because you insert a lot of empty space, and embolden some of the text does not mean we can't see you just copy&pasted this post.

Nor does it mean you understand it.

[Bill Wiltrack]

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The article's publisher & author was stated at the beginning of the post.

You actually copied & pasted it.




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[FlashDangerpants]

most economists believed the next interest rate rise would be up

Which is the other direction for a rise?

[bobevenson]

Interest rates should be controlled by the free market, not the government, another AEP exclusive position.