President Donald Trump has tweeted his support for zero or lower interest rates in the wake of a massive and crippling national debt. Not only is that a raw deal for those Americans who have saved up for an emergency, but it’ll help little in the face of the monstrous mountain of debt the United States has managed to rack up.
JPMorgan Chase CEO Jamie Dimon this week said bank executives have discussed imposing certain fees on consumers if rates fall to zero. That’s already a problem because if interest rates fall to zero or worse, go into the negative, you’ll be paying the banks interest to hold your money. Trump on Wednesday tweeted that the Fed “should get our interest rates down to ZERO, or less,” allowing the federal government to refinance its massive debt at a lower cost according to USA Today.
In the coming years, even if the country is gripped by a terrible recession, it isn’t likely that we’d see negative or zero interest rates. The central bank almost certainly would not take such a step in the short term, although looking out further, it could be possible by 2021. Other countries have done it. Fed Chairman Jerome Powell has said the U.S. economy is performing well and the Fed’s key rate is well above zero at a range of 2% to 2.25%. But Powell and other Fed officials are worried about risks that could derail the record 10-year-old economic expansion, such as Trump’s trade war with China and a slowdown in global growth.
The Fed is expected to continue to gradually trim the interest rate in an effort to spur more consumerism in the form of borrowing and spending. With markets expecting five more quarter-point cuts by early 2021, according to Bank of America Merrill Lynch. That would leave just three more decreases to get to zero, suggesting it could happen in 2021.
Negative interest rates would not mean banks aren’t making money. They would simply raise their fees to borrow money or increase overdraft or ATM fees on their customers. The only one making less or no money would be those who have an emergency fund stashed away in a savings account.
Bringing the interest rates below zero in other countries has devalued the fiat currency. If the dollar is devalued, many personal wealth gurus suggest having hard assets onhand, such as gold or silver.
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The reserve currency needs to have higher rates (stronger) than other country’s currencies in order to keep it in demand. If the Treasury rates go below bond rates in other major countries, those bonds will become preferable to hold as reserve investments and will undermine the FRN as reserve currency.
The interest rate COULD go negative as long as the Treasury’s negative rate remains higher than others, thus maintaining the stronger FX position and demand.
But negative interest rates destroy money, therefore they are deflationary. They are the same as a debt default. When all countries embrace negative rates, the world will fall into a never-ending deflationary depression until the last debt is deflated away. Precious is an inflationary hedge. FRNs are a deflationary hedge. In a worldwide negative interest rate depression, cash will be king.
“Twenty dollar bills in #10 cans”, as the Mushroom once said.
A stronger-than-others currency hurts exports. The EU is already negative-rate, with some $17 trillion in bonds of that sort.
Great for the gazillionaires, of course, but it makes a “life sucks” situation for Joe Sixpack…
If Joe Sixpack had a brain he would save in cash and silver, then life would be good. I hope my 50 bux in the bank is safe lol.
I buy Tbills. The interest rate is set by auction. Nobody will buy them if the interest rate is artificially set at zero. The USA would then have to live off whatever income they get. They could no longer borrow money as no one will loan it to them by buying Tbills, Tbonds, and other Treasury debt instruments.
Uncle Sam will be unable to pay all their bills.
The Feds can set the interest for Banks at whatever, but that is a different system and is “private”. If set to zero like a previous commenter said people will cash out their savings. That will collapse the banking system.
This is not Europe.
“The USA would then have to live off whatever income they get.”
The US borrows from the Federal Reserve who creates the money out of thin air thus increasing M1. The US takes in roughly $3.3 trillion and spends $4.1 trillion for a deficit of $800 billion. The Fed has Monitized the debt before and will do it again. One way or another this will make it into consumer hands regardless if its the defense component, entitlement or just running what is.
It’s all false. It’s a planned managed (poorly at that) economy that as it decays is dependent upon strong arm tactics (overthrowing governments) to force nations into economic compliance (continued use of the USD as Reserve Currency). It does appear to this laymen that under Negative Interest Rates saved money increases in value in the hands of foreign governments.
The way the US “borrows” from the Fed is that the Fed buys treasuries, thus loaning money to the US.
When I buy a Tbill I’m loaning money to the US government. If you buy a savings bond you are loaning money to the government. When the SS trustees buy Treasuries they are loaning money to the government.
Most treasury interest rates are set by auction. Nobody is going to bid at 0% or negative interest rates. Not even the Fed.
The US government doesn’t go to some banking consortium like the IMF and say we need a loan of 100 billion dollars. Doesn’t work that way.
Bank loans do increase the money supply, that is private debt.
We have seen unprecedented financial actions post 2008 and how it works changes. Remember “Obama Money” handed out to the masses? I understand that “The Fed” buys the debt and I also understand that their vaulted “Reserve” doesn’t exist beyond a key stroke aided by ink and paper.
” Not even the Fed.”
We’ll see. You’re liable to be surprised.
Agreed there has been some really strange financial actions post 2008 as well as some big-time abuses of government debt and regulatory powers.
Paraphrased here “if a man owes you a million dollars you can tell him what to do, but the man that owes you 1 billion dollars, he can tell you what to do”, so the Fed could cave.
However under existing Federal law, the first bill to be paid is federal debt.
At least we still have our guns and the lawmakers know it.
“At least we still have our guns and the lawmakers know it.”
For now. How a nation so vibrant 6 decades ago, pre Vietnam, pre JFK Dallas, the literal envy of the world can reduce itself to its present state is neither unlucky or even mismanaged by happenstance as their bound to make some good decisions by accident; its intentional. There was a movie, “Blast From The Past” that had Christopher Walken live in a bomb shelter isolated from 1962 until 1990. Imagine someone going into a coma then and for some reason not aging (remember it would be a movie) and then waking up today.
Nothing, absolutely nothing can surprise or shock me.
“Nobody is going to bid at 0% or negative interest rates.”
Many will. Pension funds that are required by law to buy government bonds and need liquid instruments to pay pensioners. Pension funds are a huge market. They have no say on what interest is paid or charged on their mandatory purchases. Sovereign wealth funds, mutual funds, even speculators. There are over 17 trillion dollars worth of negative yielding bonds today. Someone’s buying. Some of it is “beggar the next fool”. Some traders buy on the assumption rates will continue going down and then they will profit on the sale of their bonds to the next buyer.
If the economy functionally fell apart it wouldn’t surprise me if it was made mandatory to buy, US Savings Bonds as an “Investment In The Future” (remember that catchy phrase about the bailouts and debt from Biden a few years back). Think FDR and Executive Order 6102 Gold Confiscation. Think CCC Camps, the National Recovery Act (the other NRA). They were laughable concepts a decade previous.
Best an individual can do is stay out of debt and not borrow anything…pay as you go. Stock up on everything and keep your head down and let the chaos pass you by. Let the government learn the hard way what the results will be.
A century of imbeciles running the U.S. financial house into the dirt leaves any sane current President with a wish for “0 %” interest rates. The current interest dollars servicing our DEBT are directly reducing the quantity of money available to reduce the TAX BURDEN on American Citizens. Only Demonrats fail to see the writing on the wall.