Negative Interest Rates Aren’t Working Because They Haven’t Been Tried

Zombie economists bring on US 2016 recession. (Photo by Charlie Llewellin (Flickr: Occupy Austin) [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons)

The economics world is all a-chatter about how central banks and their member banks have moved interest rates beyond the zero bound to charging negative interest rates. There is just as much brainless talk about why this is accomplishing nothing. No one seems to notice that negative interest rates never actually happened!

Sounds preposterous? Think about it:

Think about it in terms of the central banks’ stated objective, which is lowering the rate at which banks loan out money. As the recession went on, central banks tried to drive interest on loans like mortgages lower and lower in order to entice people to buy things with loans in order to stimulate the economy. Because that didn’t stimulate the economy enough, central banks started saying they might have to go from lowering interest (for banks) to the zero bound (zero interest rate policy — ZIRP) to taking interest all the way negative (negative interest rate policy  — NIRP). Nope. Never happened anywhere.

In order to get interest rates in the general economy down, central banks made moves that would take down the rate at which banks borrow money from each other and from the central bank. Eventually, central banks took that rate all the way down to zero. Following that progression, if interest were going to go truly negative, the central bank would need to start paying banks for borrowing money from each other or from the central bank. (In the context of talking about ZIRP, that would be true negative interest rate policy.)

Given that the actual objective is not what happens between banks but to stimulate the general economy, central banks would have to do this in ways designed to make sure their member banks pass that negative interest on to mortgages and other loans. Negative interest, instead of just low interest on your loan, would mean the banks pay you to take the money. Hallelujah! That would put some adrenaline in a dying economy!

Of course, none of that ever happened. Banks did not switch from paying little to no interest for the loans they take out from each other toward getting paid to take those loans. Naturally, they didn’t pass that negative interest on to the consumer because negative interest rates never happened.

 


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“Negative interest rate policy” was really just a bait and switch move

 

I guarantee you, if your bank started paying you to take out a loan, negative interest would have stimulated the economy like a whore on crack! But that is so far outside of a banker’s way of thinking that it was inconceivable, so the central planners of our economies apparently got confused about what going negative meant and changed the rules of the stimulus game entirely to the only move they could get their heads around. They switched the entire playing field from talking about the interest rate on loans to the interest rate on savings.

Instead of taking interest on interbank loans all the way into the negative zone, central bankers said they were going to start charging banks interest on their reserve savings. Instead of going beyond the zero bound with loan interest, banks simply found one more thing they could make money on by charging interest on savings.

Loans, either from bank to bank or from bank to consumer, never went negative in order to stimulate people into taking on more debt. Instead, central banksters started charging their member banks interest on the reserve deposits those banks are required to maintain at the central bank. They said they did that in hopes that there member banks would pass along that positive interest charge to their customers’ savings deposits. That, they hoped, would prompt people to move their money out of savings and into the economy. Central banks have done the twist.

Don’t kid yourself. Banks are still solely in the business of charging positive interest. Only now, instead of just charging interest on the money they loan out, they ALSO charge interest on the money they take in. They get you coming and going and then wonder why that isn’t helping the economy any. My gosh, we’ve become stupid. Entire nations are letting banks get away with this bait and switch where there is truly no bound at all to their greed.

Then our zombie economists puzzle over why people are not taking out more loans as interest moves below the zero bound. Really? Why would they? The price of the loans hasn’t gone below the zero bound. I even read one economist suggesting people aren’t moved by negative interest because people have all the debt they can handle. Sure they do; but, hey, if loan interest truly went negative, people could readily handle all kinds of additional debt because they’d get paid to take it on. What a happy refi world that would be! This is why people long said zero interest was impossible because it is Wonderland.

 


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Central banksters make a muddle out of negative interest rate policy. (Art by SPTiMedia (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons)

Central banksters make a bloody muddle out of negative interest rate policy. “Trust us; we have everything under control. Now, give us your savings.”

Leave it to greedy banksters to find a way to make sure “negative interest” really is just one more way for them to make money! A pox upon them all! Somehow they beguiled their entire populations — all their zombie economists and politicians included — into believing this was a move below the zero bound and into the twilight negative-interest zone. No. In the Wonderland of negative interest rates, the flow of interest reverses to where the bank pays the debtor to take on debt. The bank doesn’t just find one more thing to tack a fee onto!

True negative interest (on loans) would certainly stimulate the economy … enormously! I’m not saying it’s a good idea. It’s really a form of “helicopter money” that would cause hyper inflation; but charging positive interest on savings is just another form of wealth transfer that makes certain even more money moves from the poor and the middle class to the top one percent.

With this thing they are calling “negative interest,” central banksters are just saying, “Spend your money now, or we’ll take it away from you and make it all ours!” And their populations and politicians let them get away with this robbery … without even wincing!

Odd nobody realized that its just another wealth transfer to the rich! The entire world is sleep walking. Negative interest has never been tried, yet everyone talks about it as if it were actually happening! We are truly walking dead through a zombie epocalypse — an economic apocalypse in which all brains have apparently been eaten.

I don’t know what kind of weed economists are smoking these days, but they need to stuff this article in their pipe and smoke it.

 

More reading in order to get fed up with the Fed:

 

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8 Comments

  1. Ping from Chris P:

    You always wondered how you could make masses walk into their own demise? Sheeple are herded by fear.

    Silly table keyboards.

    • Ping from Knave_Dave:

      We’ll soon know if the fear factor worked on the Brexit vote where no one seemed capable of giving a positive reason to stay in the EU, just a thousand reasons people should be scared to leave because the UK is apparently no longer capable of taking care of itself (if you believe the fear mongers). We’ll see if they herd as easily as the Greeks did.

      • Ping from shushumiga:

        As I wrote the correction is not over and now we have the Mai-June correction which I was talking about:)
        The higher high in June was a fake move it is part of the correction.
        In a few days move higher should begin for a few weeks, but the final low is expected late September early October then we will see the 50% retracement.
        Remember the more important is – this is a correction and after September the next leg higher will begin until mid 2017. You can ride 500-600 points higher or wait for the crash it is your choice.

        • Ping from Knave_Dave:

          Well so much for the stock market moving higher in a few days. The electrons hadn’t settled on your words before the the market plunged, and I doubt the market will get above where it was when you wrote this over the next few weeks either.

          Calling the higher high in June a “fake high” is also nothing but a cheap cover on your part for the failure of your theory to predict the market would rise in May and June when you said it would be in correction mode.

          Reality just crashed into chart theory, and reality won.

          • Ping from shushumiga:

            Nothing has failed, you just have no clue about trading it is called expanded flat the pattern when wave B makes higher high just before to plunge lower. A correction does mean the market will crash it could be sideway move that is why it is called “flat”. You have no clue but when you look the indicators you will know that the market is in a correction mode since April.
            I wrote this yesterday – have we seen a few more days trading so that the dust settle down, before a move higher begins?????

            “Reality just crashed into chart theory, and reality won.” – lol which reality in your sick bear head the market will crash.:))))))) Just wait and watch how you ass will be kicked hard again.
            Then it will be interesting to hear your bullshit about chart reality and crashes and FED and bla bla. It will be just priceless:))))))
            You do not want to think you do not want to learn, you just want to be right how everything is fucked up but you are wrong. You just deserve the market to take your money. I doubt you are trading you are just hot air bla bla.

            • Ping from Knave_Dave:

              “have we seen a few more days trading so that the dust settle down, before a move higher begins?????”

              No. I wrote this so that over the next “few days” we can watch and see whether reality kicks your butt or mine. We’ll watch to see if the indexes go higher than where they were when you wrote this (as you NOW say will happen) or remain lower (as they very clearly are right after you wrote it — something your addiction to magical chart theory missed entirely) or will they fall even farther?

              Of course, I haven’t said the market will crash over the next few days, but it looks very unlikely that it will rise as you said it would before the Brexit count was fully in. I’ve said that I’d expect a bear market of the kind of total collapse we are entering to take about a year and half to find its bottom.

              I think you were just gambling that Brexit would make you look good because statisticians had laid a high likelihood on Brexit not happening. So, you put in your bid here (so to speak) before the full results of the Brexit vote came in, figuring the odds were in your favor that Brexit would fail, and so the market would rise, and you’d look like a genius for predicting a rise (never mind that that would contradict your earlier predictions).

              Instead, Brexit happened against the odds and markets all over the world nose-dived … so far heading in the opposite direction from what you just predicted. But your are holding with your position that they are going to recover from Friday’s nose dive in the next few days reach even higher ground than where they were on Thursday and that that rise will continue for 2-3 weeks.

              If that doesn’t happen, reality kicked your butt:

              “In a few days move higher should begin for a few weeks, but the final low is expected late September early October then we will see the 50% retracement.”

              You wrote that when the S&P was above 2100, so a move higher would mean that June actually began a move that extended the March rally to a new top, not that retraced it.

              Like most false prognosticators, you have been changing your position as time moves along. You started out by saying in response to another article I wrote (“Where Oh Where Has the Rally Gone?”):

              “So expect the first pullback to be shallow and the top to be tested all this in April.”

              That part you did OK on. The pullback had already begun when you wrote it, so you get no credit for that. In fact, you were responding to an article of mine that claimed the pullback meant the end of the rally, and clearly I was right about that much. The market hasn’t gone higher since then. The rally ended right there and bounced sideways thereafter.

              What I will credit you for is that the pullback that had already begun did prove to be shallow, as you said it would, and the market did spend the rest of April testing the top in a more or less sideways move (but didn’t surprise me any either). So, you were right enough up to that point, but then things fell apart for you:

              “After that a bigger correction should begin Mai-June. I expect at least 50% correction. When we see how the decline develops we will know who is right the bulls or the bears”

              When I took your unclear statement to mean a fifty percent drop in total share values, you corrected me in your usual acerbic way:

              “Wake up!!!!!! 50% Fibo retracement of the current move higher from the February low.”

              So, you made it clear you meant a fifty percent retracement of the March rally that began near the end of February. Well, we saw how it developed, and obviously you were wrong. No fifty percent correction began in May at all. Things settled a little through late April and most of May but not much and far from a “correction” by anyone’s standard for a correction and also far from being a fifty percent retracement of the March rally.

              Then the market indexes began to climb at the end of May and through most June, which you failed to predict. The market indexes went even higher than they had been. Then, right at the end of June, just as you were writing your comment to this article, Brexit happened. That could have turned into your saving grace just in the nick of time at the tail end of June because the markets could now drop for that fifty percent retracement of the March rally that you said would start in June.

              However, you are now switching your prediction to claim the market will actually start a RISE here at the end of June (so that the start of a retracement gets pushed off into July.

              Not a chance on letting you change the time table. You said what you said. If it’s wrong, you’re theory is wrong. I’m not going to let you off with being one of these prophets who constantly revises his dates. You said the retracement would begin in May-June. Bouncing sideways through May and June to a new high is far from being the start of a retracement. So, if the S&P starts actually rising higher in the last few days of June and continues higher for a few weeks into July, you were wrong on your first prediction. You don’t get a revised time frame.

              Now, we get to test your revised prediction: We have a market plunge that is beginning at the end of June. In the face of that, we have your revised prediction that the market will actually right itself in a few days and then the market will go HIGHER FOR A FEW WEEKS. So, we’ll test your revision to see if it fails as badly as your first claim did.

              You also never stated the correction “could be a sideways move.” So, I’m not going to let you have that either. That, too, is a complete revision of your original claims. You said clearly, as quoted above, that you expected the May-June correction to retrace the previous rally by fifty percent. Elsewhere you said it wouldn’t be much more or less than that; but now you’re saying the flat move through May and early June was good enough.

              Over the past few months as you sang and danced about how dumb I am and how smart you are, you’ve wandered all over the place:

              At one point, you claimed “I claim too, that there will be one more big bear cutting the prices in a half.”

              You also said, the market moved higher and would “have one more move higher before we see the big bear.”

              “If you are lucky there will be one more zig-zag lower to 1700 for SP500.”

              “I am watching charts and the charts are telling me there is no signs so far for a bear market – real bear market which cuts the prices in a half not 20% sell off.”

              “The correction has 6-12 months more to go but at the end this is not the big bear which you expect.”

              “Just a big correction and another 6-12 months lower for the end of the 9 year cycle , take another 2-3 years for the next one higher and there you have it…. There will be another leg lower all perma bears will cry the end of the world again just to be torn apart again.”

              “This is a big correction to purge bullishness and greed, nothing more.

              “Please spare me the same bearish bullshit which I listen every time for years and listen carefully – the next cyclical bear which will cut the markets in a half and finish the secular bear market is a few years away.”

              I don’t know how anyone can make any sense out of all of that. The best I can decipher from it is that you expect no bear market to happen for a couple of years (with a bear market being by your definition, at least a 50% loss in the market’s total value, not the 20% most people call a bear market). After 2-3 years, there will be a big bear market. In the short term, you expected a jog lower in which the market would retrace the rally it had just finished back downward by 50% after which it would rise until the Big Bear.

              Then, however, you said the retracement could go all the way down to an S&P mark of 1700, but that would be lower than the February bottom where the March rally began so it doesn’t fit with your statements that there would be a 50% retracement of the rally. That would be more than 100% of the rally!

              For now, let’s see if you can get even the first part of your revised prediction right:

              “In a few days move higher should begin for a few weeks”

              If you fail on that correction of your earlier prediction, you’re out of chances as far as I’m concerned.

              We won’t need to wait for this part: “the final low is expected late September early October then we will see the 50% retracement,” as a second failure in the next few days and next few weeks will show you are clearly just throwing darts in the dark, and anything beyond that is a luck stick.

              –David

            • Ping from Knave_Dave:

              We’ve had almost TWO WEEKS now, so we have seen more than “a few more days trading so that the dust settle down.” During that time saw the stock market fall, then we saw it rally but only back up to the point it fell from. There as no May-June correction. Even the fall from Brexit was short-lived and didn’t amount to anything like a correction.

              Almost two weeks ago, you wrote, “In a few days move higher should begin for a few weeks.”

              But here was reality: The rally from Brexit hit its head on the ceiling after just a couple of days, as it has always done since the crash of Sept 2014 that I predicted. So, there was no rally that moved higher “for a few weeks” as you predicted would happen. After a rally of less than a week, the stock market is falling again, having never reached any new heights.

              On top of that, the oil market is finally falling again, as I’ve maintained consistently that it will do (though it has taken longer than I thought, and I may be premature still in thinking this decline will amount to much).

              So far, we’ve seen exactly the opposite of everything you’ve predicted. When things were supposed to have sunk in May-June, they went up, so you postponed your correction dates to the fall. When things were supposed to have rallied for a few weeks after your last writing, they went briefly down, then briefly up and are now going down again. Most importantly, they bounced their noggins off the ceiling yet again.

              –David

  2. Ping from Chris P:

    You alway wondered how you could make masses walk into their own demise? Sheepel are headed by fear.

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