NEGATIVE INTEREST RATE REGIME IS DEADLY

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YouTube – Negative interest rates

Bush’s former economic advisor, Professor Mankiw, has a solution to the economic mess he and his stupid friends created: negative interest rates!  Who would have thought of that little trick?  Well, nearly everyone running the Federal Reserve since 1971, that’s who!  He also has another goofy magician trick: to have a lottery that chooses a number randomly and then presto-chango!  All US currency with that number as the last digit is DESTROYED!  I shudder to think what this will cause!

This man, we must remember, is teaching our dear youth all about economics.  If this is so, he should be stripped of his chair and tossed into the nearest rubbish heap.

 

Economic View – It May Be Time for the Fed to Go Negative – News Analysis – NYTimes.com

 

So why shouldn’t the Fed just keep cutting interest rates? Why not lower the target interest rate to, say, negative 3 percent?

Most of my life, interest rates have been negative.  That is, if you put your money into a regular ‘savings’ account, it shrinks in value, faster or slower depending on how drunk the President is and how craven the Federal Reserve chief is, namely, is he a drinking buddy of the President?

Volcker is the only Fed chief who ran interest rates greater than inflation.  He had to do this since we were rapidly entering hyperinflation.  It worked.  But since 1981, interest rates have been hundreds of basis points below the real rate of inflation. This is disguised by the Fed changing how  it calculates inflation so the true rate is hidden.  This is pure dishonesty.

Thanks to this, the average income has not kept up with inflation.  Thanks to the cheap lending via this trick, people got to buy more and more but are sliding deeper and deeper into debt.

At that interest rate, you could borrow and spend $100 and repay $97 next year. This opportunity would surely generate more borrowing and aggregate demand.

During the last 25 years, US borrowing has shot through the roof.  Our economy is now 70% consumer spending and about 90% of that is via cheap lending courtesy of the Fed running interest rates well below the real rate of inflation.

The problem with negative interest rates, however, is quickly apparent: nobody would lend on those terms. Rather than giving your money to a borrower who promises a negative return, it would be better to stick the cash in your mattress. Because holding money promises a return of exactly zero, lenders cannot offer less.

You doofus.  The zero rate is the BEST we can hope for!  What we have is a -3 to a -10 interest rate.  This is why, since Reagan, the US savings rate which was over 10% for the previous 75+ years plummeted to BELOW ZERO.  ZIRP is killing savings!

Unless, that is, we figure out a way to make holding money less attractive.

What is this idiot?  A pirate?  A highway robber?  A terrorist?  Hell, we are sending our navy to Africa to fight pirates!  They should land some SEAL sharp shooters at the campus where this pirate is hiding out, corrupting our youth!

At one of my recent Harvard seminars, a graduate student proposed a clever scheme to do exactly that. (I will let the student remain anonymous. In case he ever wants to pursue a career as a central banker, having his name associated with this idea probably won’t help.)

Don’t want Navy SEALs catching him, eh?

Imagine that the Fed were to announce that, a year from today, it would pick a digit from zero to 9 out of a hat. All currency with a serial number ending in that digit would no longer be legal tender. Suddenly, the expected return to holding currency would become negative 10 percent.

See?  Highway robbery.  This clown wants to hand out dollars to the Chinese and then make them go ‘poof’.  Well, the Chinese might retaliate.  We don’t want to see what this might be.  I assure everyone, the Chinese will not take kindly to this suggestion, and how about OPEC?  We buy lots of oil from them. What if we pay with vanishing ink dollars?  YIKES.

That move would free the Fed to cut interest rates below zero. People would be delighted to lend money at negative 3 percent, since losing 3 percent is better than losing 10.

See how psychopaths think?  Did the professor tell this student to hand over ten dollars and then gave him back only seven?  HAHAHA.  The student would scream, eh?  Or worse, the professor KEEPS the entire $10 and then tells the student, if he gets it back, he has to pay credit card rates for PERPETUITY.  Of 30% to the professor.  HAHAHA.  A lesson this child will never forget.

Of course, some people might decide that at those rates, they would rather spend the money — for example, by buying a new car. But because expanding aggregate demand is precisely the goal of the interest rate cut, such an incentive isn’t a flaw — it’s a benefit.

If anyone is thinking of making our negative interest rate worse, well, the Gold Bugs will be in Hog Heaven!  Congratulations, guys!  You will be billionaires.  Hope it isn’t a billion Zimbabwe dollars!  Indeed, buying gold and then selling it for yuan will be most profitable since the dollar will cease to be of any interest to anyone doing business overseas.

The idea of making money earn a negative return is not entirely new. In the late 19th century, the German economist Silvio Gesell argued for a tax on holding money. He was concerned that during times of financial stress, people hoard money rather than lend it. John Maynard Keynes approvingly cited the idea of a carrying tax on money. With banks now holding substantial excess reserves, Gesell’s concern about cash hoarding suddenly seems very modern.

People hoard cash when banks cease paying them for holding it and using it for lending! The banks need CAPITAL.  Whenever any nation goes into ‘no capital lending’ all savers run for the hills since they are ripped off, if they share their money with these crooks.

If all of this seems too outlandish, there is a more prosaic way of obtaining negative interest rates: through inflation.  HAHAHA….right!  And always, the Fed does exactly this!  Over and over and over again, nearly all my long life, they did this.  Suppose that, looking ahead, the Fed commits itself to producing significant inflation. Which is about 99% of the time.  In this case, while nominal interest rates could remain at zero, real interest rates — interest rates measured in purchasing power — could become negative. If people were confident that they could repay their zero-interest loans in devalued dollars, they would have significant incentive to borrow and spend.

This, in a nutshell, describes our economy for the last half a century.

Having the central bank embrace inflation would shock economists —WHAT THE HELL???  Far from shocked, most ‘economists’ WANT this! —and Fed watchers who view price stability as the foremost goal of monetary policy.  Since 1914, this is the storyline the international banking gnomes gave us for creating the Fed.  This has been decisively shown to be utter rot.  But there are worse things than inflation.  True: WWIII is worse.  And guess what? We have them today. A little more inflation might be preferable to rising unemployment or a series of fiscal measures that pile on debt bequeathed to future generations.

So, running things so there is no CAPITAL in the system won’t cause rampant Zimbabwean inflation???? What the hell?  HAHAHA.  Already, since 1971, we have piled a mountain of debt on our unborn.  So much for loving fetuses.

Ben S. Bernanke, the Fed chairman, is the perfect person to make this commitment to higher inflation.  HAHAHA.  Helicopter Bernie to the rescue!  Mr. Bernanke has long been an advocate of inflation targeting. He certainly ain’t no William Tell.  The kid with the inflation apple on his head will be shot between the eyes.   In the past, advocates of inflation targeting have stressed the need to keep inflation from getting out of hand. When these gnomes run into the Cave of Wealth and Death, they always assure us, they are not going  in there to have sex with the Goddess of Infinity, oh no, certainly not that, they are going in to kill the Goddess of Zero.  But in the current environment, the goal could be to produce enough inflation to ensure that the real interest rate is sufficiently negative.

The idea of negative interest rates may strike some people as absurd,—no, criminal—-the concoction of some impractical theorist—no, pirate–. Perhaps it is. But remember this: Early mathematicians thought that the idea of negative numbers was absurd. Today, these numbers are commonplace. Even children can be taught that some problems (such as 2x + 6 = 0) have no solution unless you are ready to invoke negative numbers.

As I point out in my videos and stories here, zero was invented by guys seeking to reach Nirvana which is TOTAL DEATH.  So they won’t be reborn.

Maybe some economic problems require the same trick.

N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to President George W. Bush.

 

This is an example of ‘smarts’ via our professorial community of Ivory Tower Juvenile Delinquents.  These are the fools teaching our youth the wrong lessons.  This is criminal and the people who are running around, telling children that debt is good and savings are evil should be arrested for practicing the dark arts of pickpockets and second story thieves.  

 

White House: Obama to address credit card abuses | Top AP Stories | Chron.com – Houston Chronicle

 

The White House says that it will back congressional efforts to clamp down on credit card abuses in an effort to address the recession’s effect on Main Street.

The House and Senate are considering a credit card bill of rights to limit the ability of credit card companies to raise interest rates on existing balances and to require greater disclosure. White House economic adviser Larry Summers said people need to save more, but that the government also needs to curb credit card pitches that addict people to plastic.

 

Credit cards are pure usury.  And should be heavily regulated. But then, credit will stop flowing to the masses who are deep in debt due to falling further and further behind real inflation.  They have long given up, trying to save anything.  They are now on a long slide to hell thanks to easy credit which rapidly runs from zero to over 30% APR.  And this is a death trap. And should be shut down and everyone should be even with or ahead of REAL inflation. And this has to be honestly calculated.

 

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25 Comments

Filed under .money matters, gold

25 responses to “NEGATIVE INTEREST RATE REGIME IS DEADLY

  1. Where does the utter horseshit end?

  2. Simon

    Put money in bank, pay for the privilege
    I can’t wait to sign up!

  3. igneous

    OH my fucking good god.
    These people are utterly insane.

  4. This utterly, criminally insane and blame-shifting professor should be arrested for Conspiracy To Commit Crimes Against Humanity, as well as Treason! But when the Navy SEALS show up, he’ll just point the hapless student out to them. Which means he (the professor) should be arrested for Perjury, Obstruction Of Justice and Reckless Endangerment as well. 😡

  5. emsnews

    If he does his amazing trick, why, buying gold would be the only sane thing to do, seriously. This is definitely a scenario where turning savings into gold is the ONLY option!

  6. OC

    Elaine,

    Here is someone who agrees with you – if this comes true; it’s time to hoard coins and precious metals:

    ‘Time For Mankiv To Resign’

    http://globaleconomicanalysis.blogspot.com/

  7. nah

    ??? what ??? A TAX FOR ACCEPTING PAYMENT IN DOLLARS IN THE U.S. ??? what a bunch of morons… imean if that anyones idea of a economic system they are reckless in the extreme… debt is one thing, worthless money is worthless money… pay people money to borrow… imean lets face 2 facts… fact 1: 2 billion people are comming on line in the next 15 years as 1st world economys… fact 2: there is only one planet earth… the wealthy elite are completely out of touch with what a market is, they must think that they are gods that choose mankinds kings from visions recieved in overpriced collages… you cant steal from people… imean you cant… you can not steal from people… stealing from people is bad… fraud, ponzi schems, robbery, theft, and stealing is dishonorable… either we earn our greatness, or we steal it from other people… not that we cant steal our greatness from the children of foreigners, but that is perverse power… it is not ascension of ideas to steal… it is a spiral of corrupt greed saddling all fools ‘who for the most part are more inteligent than common criminals’ with the failures of novice leaders
    .
    http://video.google.com/videoplay?docid=-53565441845289277&q=nuclear+fision&total=185&start=10&num=10&so=0&type=search&plindex=0
    .
    in 1992 dollars were actually things that had meaning

  8. It’s such a pleasure to have someone sane to read.

    [There is another site where the economic advice is sound, but this person and his followers think that GW is a left wing hoax gaaaaa!!]

  9. These academic goofballs are a piece of work, eh? I would argue for absolute simplicity. To the point, perhaps, of making lending illegal. In my long life, I’ve never borrowed anything from any finance company. So, the idea of currency being based on debt was very difficult for me to grasp. And it really still makes no sense, even though I can see that money could have (apparently did) evolved from IOUs. Here I always thought that money was for getting people to do stuff and buying groceries. Any connection of these functions with debt was most elusive to me until I began to read the stuff here.
    .
    It wouldn’t bother me if they just outlawed lending. I hear the Muslims did something like that. Things would all be a lot different if I was in charge.
    .
    This reminds me of a strange episode when I was a young dude living in Connecticut (Fairfield County). At probably a bar or something, I was sitting around talking to a bunch of future gnomes (literally). So they were talking about taxes, and I begin to advocate my screwy “black ball” method of taxation. With black ball, a lottery from all outstanding social security numbers draws some percentage of the population, who get the black ball tax. That means no matter how much you have, they take it all; clean you right out. They take away your cloths and give you a barrel. Evey one was utterly appalled. But I was (widely) known for this kind of deliberate gaffe.

  10. MCC

    Negative interest rates!! Ha. Apparently it’s not enough any more to create a Frankenstein’s monster. Dump him in a vat of toxic waste and mutate him. Then give him magic powers and mind control abilities. Then put him on a surf board atop a giant Tsunami of shark infested killer acid…. and then finally unleash him on the world. Now that’s how you really run an economy!!

  11. JSmith

    Another view from the New York Times… fortunately, no one outside Manhattan pays the slightest attention to the Times anymore. Irritates ’em no end, too.
    .
    You may want to read (if you haven’t) Charles Kindleburger’s “Manias, Panics, and Crashes”. From the South Sea Bubble to the Dotcom Bubble to the Housing Bubble… plus ca change, etc.
    .
    http://tiny.cc/yDm5l

  12. nah

    http://www.reuters.com/article/ousiv/idUSTRE53J26620090420?virtualBrandChannel=10504
    INSTANT VIEW: Bank of America reports quarterly profit
    .
    sweetcha’ got a liars loan there buddie… media loves these bank results

  13. nah

    Pessimism Porn?
    .
    ABC’s Dan Harris is fixated on “a little something called pessimism porn.” According to Harris it’s “a term coined by the good folks over at New York Magazine and it refers to the fact that there are a lot of people who’ve become addicted to reading apocalyptic news about the economy online.”

    /see Video: http://redtory.wordpress.com/2009/04/12/pessimism-porn/

    Barnell maintains that “pessimism porn” dulls the “strategic brain” and that, like actual porn, it “narrows the intake capacity. After a while, you’re simply blind from all that self-pleasuring.” (I’m presuming he means “blind” in the figurative sense there…)
    .
    think of yourself as a cog that CAN visualize world peace, take some prozac you may need to relax if you think to much. everything is under control, your family’s will be fine

  14. nah

    guns dont kill people

  15. if

    Ten principles for a Black Swan-proof world
    By Nassim Nicholas Taleb
    Published: April 7 2009 20:02 | Last updated: April 7 2009 20:02

    1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

    2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

    3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.

    4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.

    5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious.

    6. Do not give children sticks of dynamite, even if they come with a warning . Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists.

    7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.

    8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.

    9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).

    10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.

    Then we will see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news.

    In other words, a place more resistant to black swans
    http://tinyurl.com/cklqk6

  16. CK

    If they are offering me a loan with a negative annual interest rate, is there any rapid repayment penalty? For certainly if I were to borrow today $100 with the promise to pay back $97 one year hence, why would I not avail myself of paying that $97 back tomorrow. In one day I have made $3. Rinse and repeat. At the end of the year I have borrowed $100, 365 times, repayed $97 364 times, and have “earned” $1092 over the course of the year. It sounds like a wonderful way to jumpstart an economy does it not? Add zeros as you see fit.

  17. Gary

    The snake (Oroboros) has eaten his tail and from the craziness illustrated
    in this article, he’s working on eating his head right now. Pretty soon, Poof! No more snakeey —–ie,capital

  18. Gary

    Snakes Alive !
    ……………..
    And it’s not like I’m leaving you lonely
    ‘Cause I wouldn’t know where to begin
    But I know that you’ll think of me only
    When the snakes come marching in
    When the snakes come marching in……….J.Garcia

  19. CK

    @IF:
    1) Do away with government, by definition it is too big to fail and thus should never have been allowed to grow. Remedial abortion is called for.
    2) WIthout government, there is no possibility of nationalization and thus no possibility of socialization of losses.
    3) Without government there are no school bus monopolies and thus no chance for errant school bus drivers to impace more than one busload at a time.
    4) If the incentive bonus is based on number of accidents it might work. Or we could just dance naked around the campfire and barter seashells by the seaside.
    5) It takes many simpletons to create a complex item.
    6) Giving dynamite to children is a fine method of weeding the not so bright from the bright, and it costs less than free public schooling.
    Likewise allowing people to invest with sharks helps reduce the amount of malinvestment done by simple folk. ( I note in passing that government and religion both have at base the idea that folks must be protected from themselves. No Pot for you IF, No Absinthe either, No running around with bare naked wimmen, no fat in your diet nor sugar in your tea, no salt on those french fries; it’s for your own good.)
    7) Government being the biggest Ponzi scheme of all, of course government must continually restore confidence in its simpletons.
    8 ) So what should a withdrawing addict consume? Tough Love? I told you sos? The back of one’s hand? Why in hell should an addict have to withdraw from anything?
    9) Since there will be no retirement, there is no reason to worry about planning for it. Or you could invest for yourself.
    10) Chewing gum and bailing wire work, duct tape works, piece wise muddling through works. Try to make an omelet without broken eggs, you get hard boiled eggs instead.
    Mr. Taleb is the currently fashionable voice, expected sell by date to be determined; but a short shelf life is most likely.

  20. MCC

    Investers are finally starting to smell a rat in the bank financial reports: http://finance.yahoo.com/news/Wall-Street-slides-as-apf-14973082.html
    __
    HAHAHA. Now they’ll have to create some other speculation bubble to ride for a while. Maybe negative interest rates would be the way to go! HAHAHA.

  21. flash

    One other thing about this goofy serial number horseshit. Most dollars are electronic, not paper, and don’t have serial numbers. So 10% of the bills in your pocket would become (more) worthless, but your bank accounts would not be affected. Kin I get a Ph.D. now, Dr. Mankiw?

  22. In FY08, interest on the National Debt was almost two/thirds of what the Department of Defense spent, ~$412B versus ~$640B. Source: http://www.federalbudget.com/ NASA cost a measly ~$15B, BTW.

    Want REAL CHANGE in the Federal Government NOW? Without bloodshed? Google “Want REAL CHANGE in the Federal Government NOW?” to find out how.

  23. Kurt Eren

    Joseph Welch’s famous response to McCarthy is also very appropriate for this creature: ”Mr. Mankiw, have you no sense of decency?”

  24. Simon

    There is such a thing as a recession proof, Black-Swanless world
    It’s called the Soviet Union! Yuk yuk! 🙂

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