Financial Repression Insanity
Purportedly the Fed is ready willing and able to go to next step of financial repression insanity: Negative Interest Rates.
Federal Reserve officials now seem open to deploying negative interest rates to combat the next serious recession even though they rejected that option during the darkest days of the financial crisis in 2009 and 2010.
“Some of the experiences [in Europe] suggest maybe can we use negative interest rates and the costs aren’t as great as you anticipate,” said William Dudley, the president of the New York Fed, in an interview on CNBC on Friday.
Bernanke told Bloomberg Radio last week he didn’t deploy negative rates because he was “afraid” zero interest rates would have adverse effects on money markets funds -- a concern they wouldn’t be able to recover management fees -- and the federal-funds market might not work. Staff work told him the benefits were not great.
But events in Europe over the past few years have changed his mind. In Europe, the European Central Bank, the Swiss National Bank and the central banks of Denmark and Sweden have deployed negative rates to some small degree.
“We see now in the past few years that it has been made to work in some European countries,” he said.
In fact, Narayana Kocherlakota, the dovish president of the Minneapolis Fed, projected negative rates in his latest forecast of the path of interest rates released last month.
Kocherlakota said he was willing to push rates down to give a boost to the labor market, which he said has stagnated after a strong 2014.
Although negative rates have a “Dr. Strangelove” feel, pushing rates into negative territory works in many ways just like a regular decline in interest rates that we’re all used to, said Miles Kimball, an economics professor at the University of Michigan and an advocate of negative rates.
But the benefits are tantalizing, especially given the low productivity growth path facing the U.S.
With negative rates, “aggregate demand is no longer scarce,” Kimball said.
For starters, negative interest rates should be seen as what they are: theft.
Actually, the inflationist policies of central banks are theft, but negative interest rate proposals go one step further down the rabbit hole.
With this proposal, we can add Narayana Kocherlakota, president of the Minneapolis Fed, and Miles Kimball, an economics professor at the University of Michigan to the never-ending list of economically illiterate jackasses.
There is absolutely no benefit with financial repression measures that further punish those on fixed income. The positive effects these clowns see are nothing but a mirage that will vanish as soon as asset bubbles collapse.
The problem is debt coupled with asset bubbles created by debt, yet the proposed solution is to make people spend more while taking away scarce resources of those who save.
I recently discussed financial repression with Gordon Long.
Link if video does not play: Mish's Monthly Macro w/Gordon T Long
Our focus in that interview was the sorry state of affairs in Illinois. Our next interview no doubt will be on negative interest rates.
Case for Gold
It is F*ing stupid to attempt to force people to spend money on things they don't want or need on the inane belief demand is too low and wasting money is the cure.
These economic idiots will never stop, which is one reason why I am firmly committed to gold over the long haul.
Mike "Mish" Shedlock