Archive for the ‘NIRP’ Category

Upending the World

Monday, April 25th, 2016

Logic has taken a 180-degree turn, running at full sprint in the opposite direction from where it should be.

As one small example, consider the good fortune of Hans Peter Christensen, recently profiled in The Wall Street Journal, who is currently being paid by his bank to borrow money.  Christensen owns a home in Aalborg, Denmark, where negative interest rates resulted in his bank paying him the equivalent of $38 in interest for the quarter for borrowing money.

Meanwhile, in other countries with negative interest rates, some banks are charging customers for their deposits.  So the bank pays you to take its money and charges you to take your money. Zero Rates

Such is the logic of today’s central bankers in much of Europe and Japan, where rates have been negative for more than a year.

The United States has not adopted negative interest rates—but Fed Chair Janet Yellen said in February that the Fed is studying the feasibility of doing so, “to give the economy an extra boost,” according to The Wall Street Journal. (more…)

Going Negative

Monday, February 29th, 2016

“More money cannot cure what too much money created.”

                                   Frank Hollenbeck

There’s nothing positive to say about negative interest rates.

If seven years of zero interest rate policy (ZIRP) has left the U.S. economy is such sad shape, how could negative interest rates help?  Negative rates have already been tried in Europe and Japan, and they have failed to boost the economy.

And yet some believe the Federal Reserve Board is considering replacing ZIRP with NIRP.  We’ve written plenty about the failings of ZIRP, or zero interest rate policy, and believe it would be foolish for the Fed to consider NIRP, or negative interest rate policy.

The bank of the future.

The bank of the future.

How does NIRP work?  As Zerohedge explained, “The process can be as simple as the central bank charging its member banks for holding excess reserves, although the same thing can be accomplished by more roundabout methods such as manipulating the reverse repo market.”

In other words, central banks created trillions of dollars in excess reserves throughout the banking system and now they want to charge banks for holding those reserves.  The idea is to coerce banks to lend the money, which should stimulate the economy.  (more…)