Relentless Slide Toward Deflation And Negative Nominal Rates

http://www.talkmarkets.com/content/us-markets/preserve-capital-relentless-slide-toward-deflation-and-negative-nominal-rates?post=84564&uid=4798


From my article:

America is potentially vulnerable to negative nominal rates just like the rest of the world, because the US is reliant on foreign holdings of the dollar to keep it strong and in reserve status. If the dollar is to remain the reserve currency, people will need to want to hold dollars and US bonds will continue to exist in high demand.
And one of the main reasons they would want to hold dollars is because they know America has never defaulted on its bonds. They need that safety. The bonds are not only gold as collateral in derivatives markets, but they are like gold in the backing of the base currency which was once known as the high powered money, not the same as the larger money supply. The discussion below should clarify how little power high powered money, base money, has become these days.
Gold bugs believe that gold is better than treasuries at backing the US dollar, but that treasuries do indeed at least back base money. But they could live and die before their view of gold versus treasuries is verified! And there isn't enough gold to back the currency anyway. Going to a gold standard for base money or especially for all money, would limit dollars and make trade with other nations impossible.

and:

The march toward negative is proving to be the main flaw in the otherwise almost foolproof system designed to protect the banks and treasury bond demand (engineered at least in part by Alan Greenspan). The propensity toward a deflationary scenario seems relentless, in Europe, in Japan and even spoken of by the Fed.
Dr Werners' plan to end the long bond may not work, but a return to a normal economy would be welcome news. Wouldn't it be nice if we had government banks that bypassed the issuance of bonds by the treasury. These banks would offer loans to our government, at positive interest rates. Bonds could be issued for special programs, like for infrastructure as was done with war bonds in World War 2.
And regular treasuries would still back the base money. They would carry higher interest rates, reflecting diminished demand, and return the economy to more normal times. The 1 percent would be forced to pay taxes, so that the deficits would not be so large. But the bonds would not be in demand as collateral, so that would take some of the pressure off demand for them.
That way, when the Fed raises interest rates on the short end, there would be half a chance for long bond rates to go up so banks would lend into the real economy and profit. They certainly are not doing much of that now. We have a little inflation in the US, but in Europe, inflation is negative, meaning real interest rates are going up. Economists want to stimulate with negative nominal rates (real rates + inflation) to offset the rise in real rates.

and:

We are clearly entering a worldwide deflationary cycle, with the slowing of China and US slow growth and the drop for the Baltic Dry Index. If the experiments of the Japanese and Scandinavian nations fail to stimulate, through their negative rates, it will certainly be back to the drawing board. And eliminating cash is not the answer, with too many unknowns being the result.
For me, there are more questions than answers regarding this march toward negativity. In a deflationary scenario, the banking system wants to reward recklessness and punish frugality. But they brought on the frugality along with globalization and lower wages that resulted.
There is nothing wrong with frugality. Only, if everyone is frugal at the same time there are deflationary pressures and slow growth. The Japanese, and US millennials and boomers, and Europeans are frugal. Banker abuse and globalization caused this frugality in most cases. Easy money followed by credit tightening (which is different than money tightening by the Fed) is not good banker PR!

Like the Pay Cash Only Movement page:  https://www.facebook.com/Pay-Cash-Only-Movement-1486591244977682/

Negative interest rates threat to Europe's financial stability

Negative interest rates threat to Europe's financial stability - Business Insider



From the article, and, by the way, this could happen throughout the world if we don't get more economic activity:

Negative interest rates erode the profitability of the banking
sector and pose a threat to financial stability. In exchange, they offer
an economic stimulus that is mild at best and that has actually been
seen to backfire in some regions. The world economy is once again
navigating in uncharted waters.

The article goes on to show that holding cash gives a nominal rate of zero even though inflation may push the real rate to negative. But once the nominal rate goes below zero, there could come a time when people no longer want to use banks and when banks no longer want to use central banks!



The result of this happening over time in the Eurozone is that the Eurozone banks are underperforming, hurting the economies there. And some banks in Switzerland have tried to offset loss of interest rate income by imposing higher mortgage rates!



So, the solution for many is to get rid of cash altogether, so that the negative rates can be forced upon the depositor.  That would not be implemented easily, so banks will be slowly bled to death. Therefore, a return to positive rates in Europe and Japan is very important to the health of banks and of the economies affected.





 Like the Pay Cash Only Movement page:  https://www.facebook.com/Pay-Cash-Only-Movement-1486591244977682/

Negative rates are here to stay - Business Insider

Negative rates are here to stay - Business Insider



A Citibank analyst warns that negative rates in Europe could stay for years. Wake up Americans because the longer they hang around the greater chance of a cashless society happening:

In our view, ongoing inflation
undershoots and a continuing readiness of central banks to pursue
currency weakening (or at least the avoidance of an appreciation) as an
integral part of their pursuit of their inflation targets or dual
mandates suggest that the recent trend towards (more) negative policy rates is likely to continue.

Indeed, negative policy rates are likely to become a regular feature across many countries in coming years and we suspect that policy rates could fall further, perhaps significantly further, than our current forecasts suggest.
Recent developments in financial markets and the greater risks to the
global growth outlook raise the likelihood of more and deeper policy
rate cuts across a range of countries.

  Like the Pay Cash Only Movement page:  https://www.facebook.com/Pay-Cash-Only-Movement-1486591244977682/

Negative interest rates destroying Japan's money markets - Business Insider

Negative interest rates destroying Japan's money markets - Business Insider



Money markets are going to be disbanded in Japan as you break the safety with NIPR, Negative Interest Rate Policy.  This is a disturbing destruction of paper assets that investors have relied on for years.





  Like the Pay Cash Only Movement page:  https://www.facebook.com/Pay-Cash-Only-Movement-1486591244977682/