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Business/Finance See other Business/Finance Articles Title: Subzero: How Negative Interest Rates Will Finally Kill America’s Free Market Subzero: How Negative Interest Rates Will Finally Kill America’s Free Market Here’s why the Fed’s plot to impose negative interest rates is the single biggest threat to your financial freedom… and how you can protect your wealth (and even profit)… by Shah Gilani, Editor, Wall Street Insights & Indictments As we speak, the soldiers of fortune at the Federal Reserve are devising an insidious plan to solidify their control over free markets and America. I’m talking about a Negative Interest Rates Policy, or NIRP for short. This prescription envisions banks lending cheaply and consumers spending robustly, spurring economic growth and propping up beleaguered markets. But, as I’m going to show you, the reality is quite different. This isn’t just an insane policy, it’s a MAD (mutually assured destruction) policy, the equivalent of a “nuclear option” in economics and finance. Here’s what the Fed wants you to believe, what’s really going to happen, and how, if the Fed wins the battle it’s about to wage, Americans will lose their war for economic freedom… Less than Zero After causing the credit crisis by manipulating interest rates too low for too long, the Fed had to rescue big banks by implementing ZIRP, their zero interest rate policy, and then quantitative easing (QE). The one-two punch allowed insolvent big banks to borrow at no cost (ZIRP) to buy trillions of dollars of U.S. Treasuries, which they’d re-sell to the Fed for fat profits under the $4 trillion buyback scheme (QE). Too bad ZIRP and QE never trickled down to the economy at large, evidenced by GDP growth averaging less than 2% over the past eight years. Instead, the bulk of the Fed’s “stimulative” efforts pumped up various asset classes, especially stocks. Now, with economic growth faltering, recessionary fears mounting and increasingly volatile stocks slipping, the Fed is floating the idea of a negative interest rate policy, or NIRP. And make no mistake – the Fed is just waiting for the next economic emergency to employ its new strategy. The Next Crisis Will Trigger Negative Rates First of all, there is an emergency coming. There’s always another economic crisis just around the corner. We know that because the Fed and other central banksters keep engineering them, then trying to fix them by hosing deflated asset bubbles with more easy money fuel to leverage them back up again. The next emergency might be triggered by a cascade of energy company defaults, a major oil company collapse, regime change in a “friendly” oil-producing country if an anit-Western radical group assumes power, the insolvency of a mega bank, a debt payment moratorium or a default by a sovereign borrower, the Chinese economy crashing, any major stock market around the world spiraling out of control, or uncontrollable currency devaluations. There’s no shortage of potential emergencies – and as we’ve seen so far in 2016, many of the above scenarios are not only plausible, but probable. At the beginning of 2016, U.S. markets shed trillions in value thanks largely to fears emanating from failing Chinese markets. If the cracks in the Chinese economy spread and markets there continue to falter… Or take oil, which is currently trading around $33 here in the U.S., and could go lower – I’ve predicted that oil could drop as low as $20 a barrel. When that happens, you’re going to see a string of producers who can’t profit at those levels forced to shutter operations, and banks will be forced to eat billions in defaults… A tense situation in the Middle East has already lead to ISIS taking control of sizeable portions of Syria and Iraq, as well as oil reserves and means of production. Tensions between Iran, Saudi Arabia, and Yemen could produce further disastrous results, including regime change… Any emergency the Fed sees as a threat to U.S. markets will trigger their knee-jerk reaction to lower interest rates. Except interest rates are already so low that they’ll have to take them all the way into negative territory this time in an attempt to spur lending by banks and spending by consumers. But instead, NIRP will have the opposite effect, threatening the banks and magnifying the dangers facing savers and investors. What NIRP Means for the Banks NIRP not only lowers the cost of borrowing, taking it into negative territory – which theoretically means borrowers get paid to borrow – it flattens the yield curve. Just because banks incur a small cost to sit on idle cash doesn’t mean they’re going to lend more money. NIRP will result in banks lending less. As rates get compressed along the yield curve, flattening it, banks will be faced with lending for longer periods at lower interest rates, not higher rates. That reduces their net interest margins and profits. Besides, if you’re a banker and rates have been manipulated to artificially low levels, are you going to lend a lot of money out at low fixed rates and face losing money on all those loans when rates eventually rise? No way. Banks are going to suffer. We know that because it’s already happening in Europe, where the European Central Bank (ECB) instituted NIRP last year. Bank stocks across Europe have been pounded down on average 30%, with some down more than 60%, in just the past few months. Obviously NIRP isn’t working for the banks over there. And it isn’t working for the economy either. Eurozone growth last quarter was 0.3%. There’s even talk of a possible “Lehman moment” resulting from a mega bank like Deutsche Bank imploding. The reality of NIRP is banks can’t pass along their cost of negative rates to customers. Trying to raise rates on loans to offset the cost of being charged to park excess reserves in central banks is a non-starter. Loan demand isn’t growing so banks can’t raise rates. And worse, if depositors are going to be charged to park their money in banks, or fear they’d be denied access to their cash residing in banks, they’ll pull their deposits and create all kinds of havoc for banks. Poster Comment: The goose that laid the golden egg will soon be slaughtered. Post Comment Private Reply Ignore Thread
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