https://thenextrecession.wordpress.com/2015/10/30/the-next-recession/
I'm going to be more pessimistic than that article. Main reason: in 2008-9, a recently-elected Obama had a Democratic-dominated Congress (for two years), and was able to pass a stimulus package (not big enough in my estimation) to slow down the spiraling downward of the US economy after the financial crisis on Wall Street. This is not the present situation. With a Republican-dominated Congress, any stimulus package is dead in the water before it would ever be proposed. If there is a recession, expect unemployment rate to shoot right through the roof over 20%, unless Americans vote in 2016 for a Democratic-dominated Congress, in which case I will eat my words...
The effects of the last one are still being felt. Then again there is precedent.
The effects of the Recession of 1929 were still being felt when the US was hit by the Recession of 1937. One can have a recession inside a depression.
The CPI figures, like the employment figures, money supply figures and GDP figures are all crooked, like Enron. The actual unemployment rate is much higher than admitted ... we have never recovered from the current depression ... the recovery is smoke and mirrors only. The economy has to legitimately grow 4% per year, just to deal with population increase. Anything less is recession, and actual decrease is depression. What jobs that have developed, are at much less pay per hour than the jobs that were lost ... so the quality, even of the part that has recovered ... is lower as well. Based on spending savings and applying mis-created credit ... the recovery has been ... covered up, not blunted.
So if George W or Obama could just rule by decree, and ignore the legislature and the courts ... then we are all good? If any large section of society decides that one part or all three, of the government, are illegitimate ... then we have revolt or revolution! A government that pulls 14 trillion out of the air in 2008/2009 is not legitimate .. according to some ... because it is clearly bankrupt.
Quote from: Baruch on October 31, 2015, 04:26:21 PM
The CPI figures, like the employment figures, money supply figures and GDP figures are all crooked, like Enron. The actual unemployment rate is much higher than admitted ... we have never recovered from the current depression ... the recovery is smoke and mirrors only.
It does kind of seem that way.
Quote from: SGOS on October 31, 2015, 10:21:32 PM
It does kind of seem that way.
The economy has its ups and downs - unfortunately its very nature is fodder for Conspiracy Theorists.
Quote from: josephpalazzo on November 01, 2015, 05:32:18 AM
The economy has its ups and downs - unfortunately its very nature is fodder for Conspiracy Theorists.
Yes when the authorities act like the church, and pretend they have all the answers, even ill informed people say that does not work.
The problem is that ill informed people for some reason hold in their heads the notion that their betters know what they are doing, so interpret any failure as deliberate.
Quote from: josephpalazzo on November 01, 2015, 05:32:18 AM
The economy has its ups and downs - unfortunately its very nature is fodder for Conspiracy Theorists.
I agree with that. However, one should not be so quick to therefore conclude that our government does not lie to us.
Quote from: SGOS on November 01, 2015, 07:45:38 AM
I agree with that. However, one should not be so quick to therefore conclude that our government does not lie to us.
All governments lie to some extent, even if it is for the simple reason of avoiding panic. In terms of economic realities, governments don't want to say there is a recession coming our way as this public announcement is counter-productive, that is, many consumers and producers will start to act in a manner that will make things even worse. But the economy is like an asteroid, half the size of the moon, traveling at 100,000 miles an hour. We can send rockets to nudge its trajectory, but trying to control it is a futile exercise. On the same level, no government on this planet can control the economy. All it can do is apply measures to soft land a falling or overheating economy. But those tools are limited and are no guarantee of success as recessions have their own specifics - the one in 2008 was different than the one in late 1970's, which itself was different from the 1930's, and so on. Each time, we have learned certain lessons, but none of that means we will know how to face the next one.
Quote from: josephpalazzo on November 01, 2015, 05:32:18 AM
The economy has its ups and downs - unfortunately its very nature is fodder for Conspiracy Theorists.
Yes, quantization of everything by the cult of Pythagoras ... being the original Freemasonic conspiracy ;-) Accountants are the ultimate terrorists. Let me show you your bank account balance ... Eek!
And people never learn lessons from history, including economic history. So I think any "lessons" fall on deaf ears. Who is this "we" of whom you speak? Academics? Bwahaha ... stick that up your Milton Freeman (who aided Kissinger and Pinochet).
Quote from: jonb on November 01, 2015, 05:52:43 AM
Yes when the authorities act like the church, and pretend they have all the answers, even ill informed people say that does not work.
The problem is that ill informed people for some reason hold in their heads the notion that their betters know what they are doing, so interpret any failure as deliberate.
That is the story of the 2003 Iraq invasion for me. I trusted that the office of the President had access to classified information, that could justify a preventative war. But it turns out it was just the PNAC ... decided before Bush Jr became President plus Tony Blair (it is recently revealed) was part of the conspiracy shortly after Bush Jr became President. I will never trust any President ever again ... not because of the man, but the very institution is a part of a banana republic. At least Bush Sr had the good excuse that Saddam had occupied Kuwait.
But yes, we want to assume our leaders are omniscient and omnipotent ... otherwise we might be in deep shit.
Here's a history lesson on economic principles: http://www.theguardian.com/world/2015/nov/01/barack-obama-right-europe-wrong-great-recession-eurozone-economic-blunders
As I explained here (http://atheistforums.com/index.php?topic=8743.msg1100901#msg1100901), one of the "tools the government can use to spur the economy, namely: (1) expansionary fiscal policy budget deficit". This is exactly what the US government did after the financial crisis of 2008. While the EU went on a different path: austerity measures. From the article:
Quote
Back in 2010, when the half-yearly gatherings of developed and developing countries were in their infancy, the G20 met in Toronto. Up until this point, the summits had shown a welcome unity, with all nations committed to the goal of avoiding a second Great Depression.
In Toronto, the consensus broke down. Obama’s view was that the recovery was fragile and that this was the time to keep the pedal to the metal. The view in Germany, supported by Britain, was that there was a need to rein in the budget deficits that had widened during the Great Recession.
At the European Central Bank, there was concern that the deep cuts in interest rates and the unorthodox policies being pursued by the Federal Reserve and the Bank of England posed a threat to price stability. Despite the onset of a five-year sovereign debt crisis that almost destroyed the euro, the ECB raised interest rates a year later.
The result was predictable: the US recovered much faster than the EU.
Quote
A recent presentation by Peter Praet, the ECB’s chief economist, illustrated just how badly the eurozone has performed since the financial crisis. Real domestic demand in the US is now about 10% higher than it was when the Great Recession began in 2008. In Europe, despite the tentative recovery seen this year, it is still 3% lower. Over the same period, the productivity gap between the US and the eurozone has doubled in size to around 15 percentage points.
As the article goes on:
Quote
This is textbook Keynesian stuff. Unemployment is high, which means businesses are reluctant to invest. The lack of investment means that demand for new loans is weak. The weakness of demand for loans means that driving down the cost of borrowing through QE will have little impact. Therefore, it is up to the state to break into the vicious circle by investing itself, something it can do cheaply and â€"because there are so many people unemployed and businesses working well below full capacity â€" without the risk of inflation.
...
Since the recession, Britain and the US have outperformed the eurozone for the same reason they did better in the 1930s: they have made fewer macro-economic blunders. The Fed and the Bank of England were more aggressive in their use of monetary policy and when it came to fiscal policy, George Osborne quietly abandoned his original deficit reduction targets when the deleterious impact of an over-aggressive austerity strategy became apparent.
Expect France and Italy to follow a similar approach. François Hollande and Matteo Renzi will swear allegiance to the god of budgetary orthodoxy while at the same time borrowing and spending a bit more than they are supposed to. They should be applauded for doing so, because this god is a false god.
Except ... the US hasn't recovered, and US to W Europe is apples to marzipan. But I do agree that the Austerians (not Austrians) have pretty well damaged Europe so far. This is the same economic policy as France circa 1780.
Quote from: Baruch on November 01, 2015, 09:40:28 AM
But yes, we want to assume our leaders are omniscient and omnipotent ... otherwise we might be in deep shit.
Is there not a Machiavellian aspect here. If you can't be loved, be feared?
Is it not in the interests of those with authority to in all situations appear as if they are powerful?
People who are in the shit and think the forces arranged against them are all powerful tend to be inert. If people who are in the shit realise the only thing that holds them there is their own inertia might be more inclined to take action.
More bad news:
http://www.bloomberg.com/news/articles/2016-01-21/almost-out-of-ammo-central-bankers-urged-to-stay-in-the-fight (http://www.bloomberg.com/news/articles/2016-01-21/almost-out-of-ammo-central-bankers-urged-to-stay-in-the-fight)
Quote“There’s not a country in the world that should not ease its monetary policies,†Ray Dalio, founder of hedge fund Bridgewater Associates, said in Davos on Thursday.
Obstacles to sustained global growth are everywhere.
China recorded its slowest annual expansion since 1990 and is letting the yuan fall, while stocks suffered their worst-ever start to a year and oil is the cheapest in more than a decade.
Quote from: josephpalazzo on November 01, 2015, 08:59:51 AM
All governments lie to some extent, even if it is for the simple reason of avoiding panic.
Meteor? Ha-Ha don't be so melodramatic folks....c'mon....yer in movie ville...LOLOLOL meteor.......er......
The fact that gas prices are low may or may not be a problem. Personally, I like these prices. But in the past, I've noticed that higher prices were followed 6 months later by a soaring economy. I don't know, but perhaps low gas prices may signal a recession. This is just a relationship I've noticed twice before. They may or may not be related.
If you were working in the petroleum industry 12 months ago, you are probably already ... underemployed. Otherwise no immediate effect on other sectors of the economy ... low fuel prices are generally good. Some financial institutions that placed all their bets on W Canada and N Dakota ... probably are in trouble too ... but then you shouldn't gamble with other people's money.
The larger issue is China vs Europe vs N America. There is a general deflation, that can become self reinforcing ... just as there can be a general inflation, that can become self reinforcing. Deflation has been the problem since 2008 in general.
Quote from: SGOS on January 22, 2016, 12:23:59 PM
The fact that gas prices are low may or may not be a problem. Personally, I like these prices. But in the past, I've noticed that higher prices were followed 6 months later by a soaring economy. I don't know, but perhaps low gas prices may signal a recession. This is just a relationship I've noticed twice before. They may or may not be related.
Low oil price is due to a glut at the moment. It was a glut before Iran entered the market, it is even more so since the sanctions have been lifted, and so Iran's oil will depress prices even more. But you are correct, there are signs that a recession is underway. What's troubling though is no one among the bigwigs in economics can figure why. In 2008, some were able to see it coming with the financial crisis coupled to the collapse of the bubble in the house industry. This time around, no one can really put the fingers on. China's economy is slowing down but at an annual growth rate of around 5%, it's still respectable. The US at close to 4% should lift the world economy out of the doldrums, but apparently it isn't. Interest rate still near zero, and with QE and the kind of money that was pumped into the market, inflation should have started to climb up a long time ago, but it isn't. So what gives? The 6 million dollar question...
I've been waiting for this next great depression since I can remember. The threat is of course always there, but the global economy is much different than it was 70-80 years ago. No longer can another country demand all of another countries gold reserves and lay waste to the population as it once could. There was a time when just a handful of nations and individuals could control almost all commerce. The global economy is very diversified as compared to 1929 so the predictions of gloom and doom are usually overblown. Farming techniques are far different now and transportation and distribution is much better than then. In 1929 if the crops failed and the prices bottomed out everyone was fucked because there was only a small window of opportunity to get commodities to market before everything spoiled.
I'm not saying that global depression is impossible because it is, but the likelihood is far less than in 1929 and the impact wouldn't be as severe.
The doomsayers will have you believe that within a few months employment will fall with 30-40% unemployment, but I don't think that is going to happen. It's not all sunshine and roses, but it's not the 1920s either.
Hurry up and go buy your gas guzzling SUV before it's too late! By the time oil prices rebound if you don't have your Cadillac Escalade and spending $200 every time you buy gasoline then you just won't be a good American..
Quote from: josephpalazzo on October 31, 2015, 03:38:46 PM
unless Americans vote in 2016 for a Democratic-dominated Congress, in which case I will eat my words...
As an atheist, this is one of the few things I feel justified in praying for!
Quote from: Baruch on January 22, 2016, 12:39:34 PM
but then you shouldn't gamble with other people's money.
Tell that to the banks - with the repeal of Glass-Steagle they can and do gamble with others' money.
The criminal voters, voted in the criminal politicians to run the criminal government
The criminal consumers, provided patronage of criminal corporate products/services
The criminal employees, man the criminal corporations to provide those products/services
The criminal investors, make the criminal banks possible and provide leaders for the criminal corporations
The criminal banks, make looting and money laundering on a vast scale possible
There is no clean shirt in the dirty laundry hamper ... and no honor among thieves.
A recession is defined as three consecutive quarters with slow or no growth. I had reason to look this up when my moronic brother mentioned "Obama's Recession" in January, 2009.
Quote from: Gawdzilla Sama on January 22, 2016, 09:12:53 PM
A recession is defined as three consecutive quarters with slow or no growth. I had reason to look this up when my moronic brother mentioned "Obama's Recession" in January, 2009.
We no longer have recessions or depressions ... the GDP, unemployment and CPI numbers are all diddled to come out the way the Dept of Propaganda want them to come out ...
http://www.shadowstats.com
Quote from: Gawdzilla Sama on January 22, 2016, 09:12:53 PM
A recession is defined as three consecutive quarters with slow or no growth. I had reason to look this up when my moronic brother mentioned "Obama's Recession" in January, 2009.
Generally, it's a slowdown in economic activity. Technically, it is
two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP). But there are usually other signs such as a bubble in a particular market, or decline such as in the stock market or jobs(rise in unemployment). Fore-signs such as a buildup in inventory or deflation are not good either.
"If you laid all the economists in the world end to end they'd still point in all directions."
Startling economic truth.. Lying liars will lie about lying. And here all this time you thought that the liars were honest..
Quote from: AllPurposeAtheist on January 23, 2016, 04:44:43 AM
Startling economic truth.. Lying liars will lie about lying. And here all this time you thought that the liars were honest..
Not since I was seven.
Quote from: Gawdzilla Sama on January 23, 2016, 04:29:16 AM
"If you laid all the economists in the world end to end they'd still point in all directions."
That's because they like to cover all positions...
"He who tries to defend everything defends nothing."
Quote from: Gawdzilla Sama on January 23, 2016, 07:30:12 AM
"He who tries to defend everything defends nothing."
Someone who has an opinion on everything has no worthwhile opinion.
Quote from: josephpalazzo on January 23, 2016, 09:42:17 AM
Someone who has an opinion on everything has no worthwhile opinion.
"All quotes on the Internet are fake." A. Lincoln.
To quote Ronald Reagan, "Well....?"
That's the only thing he ever said that made sense..
What is missing is the discussion of depression, not just recession.
A recession is consecutive quarters of negative economic growth. It has a technical definition, which unfortunately can only be applied after the fact, but it still is defined. One can objectively point to a time period and say whether or not there is a recession. Well, except for government diddling the numbers...
A depression doesn't have such a definition, but is generally considered to be prolonged high unemployment.
Now here's the trick. While a recession does lead to a depression, you can have economic growth during a depression and still be in a depression. We had that in Great Depression I. After the initial recession of 1929 the economy started to slowly grow. We stayed in a depression until 1945, but the economy did grow during Great Depression I. And the economy also contracted during Great Depression I, in 1937. The causes of that recession inside a depression are hotly debated, but that it happened is indisputable.
Republicans are quick to tell us that the recession of 2000-2001 ended, and Democrats are quick to tell us that the recession of 2008-2009 ended, but both ignore the long term effects of those recessions. Also both ignore that the second recession is actually a continuation of the first and made worse by the covering up of the symptoms of the first. And the recession of 2016 is another continuation. Recessions, though painful, have a purpose and that purpose is to liquidate malinvestments and correct structural problems in the economy. In both cases that didn't happen, so the next recession is worse.
Quote from: Gawdzilla Sama on January 23, 2016, 09:43:28 AM
"All quotes on the Internet are fake." A. Lincoln.
Are you a sockpuppet for Baruth?
Quote from: josephpalazzo on January 23, 2016, 12:41:28 PM
Are you a sockpuppet for Baruth?
I swear ... I am not fisting anyone, not even Charlie McCarthy ;-)
Quote from: Baruch on January 24, 2016, 09:44:18 AM
I swear ... I am not fisting anyone, not even Charlie McCarthy ;-)
Jason_H ... yes, the inventory of bad housing didn't get fully cleared in 2008-09. So we still have to shit on some real estate ... too bad if you bought a lemon since 2008, suckers! We created a vast sea of unemployed college graduates, in hock to their eyebrows, who can't discharge odious debt. This means that excess Millennials will have to be put on the auction block and sent to W Africa to pick sorghum (they don't grow cotton outside of Egypt). There are also a fair number of folks who bought (zero down) cars ... who will end up losing those cars to repo .. and have to walk to work. This is why governments/banks/corporations try to avoid the consequences of recessions ... and end up creating depressions. Short term thinking kills you every time you lose control at a saloon.
Collapse doesn't come fast enough to actually punish the initiators, just the hapless bystanders. We see this all the time in management ... the first manager has a "brilliant" idea, and implements it. Then two years later, on the premature view that the idea is a success, the first manager moves on to another company, or moves up the food chain. Then the next manager comes in, inherits the "brilliant" idea ... and finds out it is an ugly turkey, and has to terminate it ... or because it wasn't his idea, even if it is an actual success (the minority of ideas), he chooses to terminate it to make room for his own ideas. If you actually know how the world works, you would never leave your mom's basement.
The recession of 1921 was more severe than the recession of 1929, but there was no following depression lasting for a decade and a half. Collapse can come fast enough, if you don't have government idiots trying to prevent the collapse.
A bad economy is a near death experience, even if you already have millions. To rephrase ...
Death can come fast enough, if you don't have government idiots trying to prevent your death.
For our Brit friends, I think the 1921 collapse was a US thing, in Britain it was in 1925, but in Germany it was in 1923 ... with special effects. This was all because of the US collapse of 1907 ... J P Morgan didn't want to have to bail the US Feds out again, so he set up a private banking cartel to do it for him, with the able assistance of the BoE and the Rothschilds. Also he initiated the income tax ... originally only on his competitors (I assume he had a get out of tax free card like Apple does now). It would have been a good thing if J P Morgan hadn't saved the securities markets (and US Feds) and let them go completely out of business. But at least he got out of having to intervene in later crises ... like WW I, which was being planned early in the 20th century.
Or to put it another way, since you absurdly compare recession to death...
The cheap credit that leads to a collapse is like alcohol, and a recession is like a hangover. If you avoid a hangover by opting for hair of the dog, you wind up with a worse hangover later. Or, if you do it too much, alcohol poisoning.
For money-holics ... losing a million in the stock market ... is death. Sometimes they make the jump, sometimes not. For you or me it might be a triviality, like losing a card game among friends. For little people who lost their house, car, job and family ... it is pretty much like death.
The economy, if we anthropomorphize it, it might be like a hangover ... but then I don't agree with the SCOTUS in regards to corporations being persons.
Sometimes people drink themselves to death, or die in alcohol related accidents. And sometimes people cannot endure having to sober up and would rather die. But the only way to end being drunk is to endure the effects of withdrawal.
Oh, I agree. That is why I think everyone should live under a viaduct in a cardboard box. What doesn't destroy you, makes you stronger ... and I think people need to be very strong to survive. The government, by saving the financial system, prevented a lot of upper class suicides. Too bad they didn't prevent Bernie Madoff ;-) The expanding death rate of American men in the 35-55 age bracket, who are not college educated ... is a necessary sacrifice for our greater glory.
I do twinge if I give a beggar some money ... he might buy a drink or he may not. I don't know how much to give. Unfortunately I am not in a position to hire him (teaching him to fish won't help). My failure for not being a tycoon like Trump ... then I could hire all the poor people I want. But we know that managerially, I should only hire successful people, not failures. So if there is no hiring, and no welfare ... the poor are justified in cutting my damned throat.
Quote from: Baruch on January 24, 2016, 09:44:18 AM
I swear ... I am not fisting anyone, not even Charlie McCarthy ;-)
I'm surprised that you, as the court jester of this forum, can impose such restrictions on yourself!
Quote from: josephpalazzo on January 25, 2016, 08:56:59 AM
I'm surprised that you, as the court jester of this forum, can impose such restrictions on yourself!
Some things have to be saved for the "special section" of the forum ;-)
Quote from: josephpalazzo on January 23, 2016, 07:09:50 AM
That's because they like to cover all positions...
https://www.youtube.com/watch?v=x4GDt03DgS8
Which one is the politician? You know, the one from the actual oldest profession.
More bad news:
QuoteThere’s been endless speculation in recent weeks about whether the U.S., and the whole world for that matter, are about to sink into recession. Underpinning much of the angst is an unprecedented $29 trillion corporate bond binge that has left many companies more indebted than ever.
Whether this debt overhang proves to be a catalyst for recession or not, one thing is clear in talking to credit-market observers: It’s a problem that won’t go away any time soon.
Strains are emerging in just about every corner of the global credit market. Credit-rating downgrades account for the biggest chunk of ratings actions since 2009; corporate leverage is at a 12-year high; and perhaps most worrisome, growing numbers of companies -- one third globally -- are failing to generate high enough returns on investments to cover their cost of funding. Pooled together into a single snapshot, the data points show how the seven-year-old global growth model based on cheap credit from central banks is running out of steam.
“We’ve never been in a cycle quite like this,†said Bonnie Baha, a money manager at DoubleLine Capital in Los Angeles, which oversees $80 billion. “It’s setting up for an unhappy turn.â€
http://www.bloomberg.com/news/articles/2016-01-28/some-29-trillion-later-the-corporate-debt-boom-looks-exhausted (http://www.bloomberg.com/news/articles/2016-01-28/some-29-trillion-later-the-corporate-debt-boom-looks-exhausted)
If a company used its profits, to buy back corporate stock and bonds ... then they might end up under-capitalized. But if they used its losses (aka did it on credit), to buy back corporate stock and bonds, then the pitchforks need to come out.
Name some modern time where "There is a recession coming and it can't be avoided" hasn't been true.
Seems like one of the easiest economic prophesies that anyone could make.
Quote from: GreatLife on January 28, 2016, 07:07:07 PM
Name some modern time where "There is a recession coming and it can't be avoided" hasn't been true.
Seems like one of the easiest economic prophesies that anyone could make.
Well, we know it's coming, but the real question is when? There's a big difference between "in 6 months" and "in 6 years".
Anyone who says they know when it is coming ... is a con-artist. Anyone who doesn't realize that the economic indicators are cooked by the government ... is naive. Anyone who doesn't realize we have been in a recession since 2007-2008 hasn't looked out their own window.
So yes, make a prediction, predict often, and don't let on that what it is, is already in progress (or regress in this case).
If your neighbor is still unemployed since 2008, then we are in a recession. If you are unemployed, then we are in a depression. That is all you really need to know.
Quote from: Baruch on January 29, 2016, 07:28:36 AM
Anyone who says they know when it is coming ... is a con-artist. Anyone who doesn't realize that the economic indicators are cooked by the government ... is naive. Anyone who doesn't realize we have been in a recession since 2007-2008 hasn't looked out their own window.
So yes, make a prediction, predict often, and don't let on that what it is, is already in progress (or regress in this case).
If your neighbor is still unemployed since 2008, then we are in a recession. If you are unemployed, then we are in a depression. That is all you really need to know.
Your ignorance of economics is astounding. Please shut the fuck up.
Desperate times means desperate measures. As the economy weakens (read: deflation), measures to be taken in order to reverse the downward trend in the economy are:
1) decrease interest rate.
2) cut taxes.
3) Expansionary deficit budget.
4) Quantitative Easing.
Now, the interest rates are at record low, have been so since 2008, near the zero point. So many countries are taking the unorthodox measure of lowering the interest rate in the negative region to stimulate demand. Will it work? The verdict is still out there.
This practice hasn't reached America. If it does, time to buy better m
attresses or invest in safety boxes.
QuoteBank of Japan Adopts Negative Rates
Bank of Japan Governor Haruhiko Kuroda sprung another surprise on investors Friday, adopting a negative interest-rate strategy to spur banks to lend in the face of a weakening economy.
The move to penalize a portion of banks’ reserves complements the BOJ’s record asset-purchase program, including 80 trillion yen ($666 billion) a year in government-bond purchases, which was kept unchanged at the board meeting. By a 5-4 vote, Kuroda led his colleagues to introduce a rate of minus 0.1 percent on certain excess holdings of cash.
Long a pioneer in adopting unorthodox policies to tackle deflation and revive economic growth, the BOJ is now taking a page out of European policy makers’ playbooks in the goal of stoking inflation. The yen tumbled after the announcement, which came after Kuroda just last week rejected the idea of negative rates.
“This clearly shows the BOJ wanted to weaken the yen and raise the price of import goods and boost inflation,†said Daisuke Karakama, an economist at Mizuho Bank in Tokyo. “We don’t know this negative rate policy will be good for the economy in the end,†he said, adding that success in Europe doesn’t guarantee the same for Japan.
http://www.bloomberg.com/news/articles/2016-01-29/bank-of-japan-adopts-negative-interest-rates-by-vote-of-5-4
I'm not sure how this minus interest works, even though I had considered the idea long before any of this came up. The reason I had thought about it was because I knew that lowering interest was one of the tools used to spur the economy, and I knew that they were already approaching zero, so I considered what would happen if interest rates were set below zero. It sounded like a bizarre idea then, and it still does.
Let's say you borrowed 20,000 to buy a car, so every month you send the bank some kind of payment on the principal, and the bank sends you a check for the -1% it owes you. In the end, the bank get's back the 20,000 but goes in the hole because it had to pay you for taking out the loan. It doesn't sound like a good deal for the bank. Although someone has done some thinking about this, I'm sure.
Quote from: SGOS on January 29, 2016, 11:44:23 AM
I'm not sure how this minus interest works, even though I had considered the idea long before any of this came up. The reason I had thought about it was because I knew that lowering interest was one of the tools used to spur the economy, and I knew that they were already approaching zero, so I considered what would happen if interest rates were set below zero. It sounded like a bizarre idea then, and it still does.
Let's say you borrowed 20,000 to buy a car, so every month you send the bank some kind of payment on the principal, and the bank sends you a check for the -1% it owes you. In the end, the bank get's back the 20,000 but goes in the hole because it had to pay you for taking out the loan. It doesn't sound like a good deal for the bank. Although someone has done some thinking about this, I'm sure.
Hmm, not really. The negative interest would be charged to your savings, not your loan on which you are already paying interest rates (negative for you). It means that you would most likely spend the money rather than leave it in your saving account where a negative interest is like a tax or a fee that you are paying to the bank. If people then spend more rather than leave the money in the bank, that will spur on economic activities. Demand goes up, firms start to hire or rehire, unemployment rate goes down, recession is averted or at least slowed down. Of course if you go down into the details, it's the Fed that would charge the negative interest to the bank on the money it has on reserve. The bank would then charge you, its customer, at a higher negative interest rate. Of course, you could beat the system by stashing your money under your mattress, but such inclination would see a rise in the crime rate as many would be tempted by the prospect of making a career as a home invader...;-)
Quote from: SGOS on January 29, 2016, 11:44:23 AM
I'm not sure how this minus interest works, even though I had considered the idea long before any of this came up. The reason I had thought about it was because I knew that lowering interest was one of the tools used to spur the economy, and I knew that they were already approaching zero, so I considered what would happen if interest rates were set below zero. It sounded like a bizarre idea then, and it still does.
Let's say you borrowed 20,000 to buy a car, so every month you send the bank some kind of payment on the principal, and the bank sends you a check for the -1% it owes you. In the end, the bank get's back the 20,000 but goes in the hole because it had to pay you for taking out the loan. It doesn't sound like a good deal for the bank. Although someone has done some thinking about this, I'm sure.
Two aspects. Lower interest rates are stimulative ... in a bad way. So going negative is stimulative in that same way ... per macroeconomic equations ... which are bogus. Almost all economic theory is no better than Santa Claus. Lower interest rates are part of the problem, not part of the solution. Nothing in excess. Zero or negative interest rates, like credit card interest rates in excess of 18% ... are part of the problem.
The other aspect ... not paying interest is theft by the bank/government. You are entitled to some interest. Negative interest is outright theft, with the bank acting as an accessory to the tax man. Once we get to -100% interest per year ... just think how stimulative that will be? People in Scandinavia, where they re mostly proposing this, are getting their money out of the banks and putting it into hard assets. Even a hard asset, which carries no interest, is superior to simply giving all your money to the tax man.
Joe - I don't appreciate your raving lunacy in this subject ... but I think anyone can see where you are coming from. Which US administration did you use to work for? Nixon's?
Quote from: Baruch on January 29, 2016, 01:09:26 PM
Joe - I don't appreciate your raving lunacy in this subject ... but I think anyone can see where you are coming from. Which US administration did you use to work for? Nixon's?
SHUT THE FUCK UP ASSHOLE
BARUCH, if you want to clown around start your own thread. Just keep your fucking nonsense out of mine.
Quote from: josephpalazzo on January 29, 2016, 01:02:20 PM
Hmm, not really. The negative interest would be charged to your savings, not your loan on which you are already paying interest rates (negative for you). It means that you would most likely spend the money rather than leave it in your saving account where a negative interest is like a tax or a fee that you are paying to the bank. If people then spend more rather than leave the money in the bank, that will spur on economic activities. Demand goes up, firms start to hire or rehire, unemployment rate goes down, recession is averted or at least slowed down. Of course if you go down into the details, it's the Fed that would charge the negative interest to the bank on the money it has on reserve. The bank would then charge you, its customer, at a higher negative interest rate. Of course, you could beat the system by stashing your money under your mattress, but such inclination would see a rise in the crime rate as many would be tempted by the prospect of making a career as a home invader...;-)
My goodness. I don't like that idea at all.
Quote from: SGOS on January 29, 2016, 03:51:00 PM
My goodness. I don't like that idea at all.
Me neither.
So far, besides Japan, you have Switzerland, Sweden and Denmark that are experimenting with a negative interest rate strategy. Janet Yellen has recently put a floating balloon out there that the US could also introduce it if the economy took a serious downturn. How serious is she no one knows. The US economy grew by 2.4% in 2015, not great but still positive. Though consumer spending has been less than expected, the economic indicator that's holding strongly is the unemployment at 5%. Expansionary deficit budget is at $18 trillions, no place to go, QE has been used too many times, and tax cuts have left government with just bare bones. The FED will be using negative interest rate as a measure of a last resort, I hope not, but I do see it coming, unfortunately.
At that point, negative interest rates, the economy will implode ... matter meets anti-matter. The yen and dollar are not the same, the dollar is the standard. Actuarial accounting (accounts payable/receivable) are based on low but positive interest. Even a bastard like Milton Friedman knew that. Because it would be a faster death, I would prefer that Obama declare himself Communist Dictator ... and simply cancel the election. That will protect us from Trump or Hillary, with something worse. 100% taxation of all checking and savings accounts, eminent domain against all stocks, bonds and real estate. Fema camps for the docile Quislings. Just like the prior experiments in Cyprus and Greece.
But seriously, even in Switzerland, do you think anyone will apply negative interest on Saudi accounts, or on the plutocratic money in the Caymans? It will be for you and me ... not for the well connected. If they did this to the rich and powerful ... all of Congress would be put into a limousine in Dealy Plaza asap. The law and taxes is only for peasants ... not for the Elite. The Queen and the Vatican and the Rothschilds ... won't tolerate this ... all their money will be in Elon Musk's Martian bank ... thankfully outside Earth's jurisdiction. Silly rabbit, survival is for plutocrats, not rabbits!
Actual negative interest rates are discussed by those countries, not on the Euro, who depend on trade with the EU. There is no reason for it here. If the EU/Euro goes belly up, the state of currency in Switzerland, Denmark, Norway, Sweden ... will be the least of their problems.
The US could adopt negative rates, to encourage all Americans to put their savings in China, in renminbi. Thanks again, Darth Kissinger! Deflation of the insane Chinese economy, must be stopped at all costs. If the renminbi goes down, then the dollar has to drop at the same ratio. Negative interest rates on dollar deposits would do that. And not just on American accounts, but ultimately thru money flow, on dollar accounts everywhere.
Quote from: josephpalazzo on January 29, 2016, 11:05:24 AMDesperate times means desperate measures. As the economy weakens (read: deflation), measures to be taken in order to reverse the downward trend in the economy are:
Deflation is to a weakening economy as fever is to an infection - fevers are the body's way of defeating an infection by cooking out the bacteria. Fever is a symptom of a cold, but it is an effect and not a cause.
Quote from: Jason Harvestdancer on January 30, 2016, 02:31:24 AM
Deflation is to a weakening economy as fever is to an infection - fevers are the body's way of defeating an infection by cooking out the bacteria. Fever is a symptom of a cold, but it is an effect and not a cause.
In economics, people ignore the elephant in the room (politics). Why is it that in Europe that have 25% to 50% unemployment for young men 20-30 years old? Because of some simultaneous equation? And you are right on ... people often confuse cause and effect. Politicians can't let the economy move on its own ... because they would lose their jobs. So to protect grifters, the society as a whole must burn to the ground. Mostly now though, it is necessary to backstop foolish investments by the Elite ... they must not be punished by the market ... just like Bush & Cheney must not be sent to the Hague.
Quote from: Jason Harvestdancer on January 30, 2016, 02:31:24 AM
Deflation is to a weakening economy as fever is to an infection - fevers are the body's way of defeating an infection by cooking out the bacteria. Fever is a symptom of a cold, but it is an effect and not a cause.
Well in a way you are alluding to the cause, and to remedy that, you need to go to the elephant in the room, which politics, and that would not please you, and many others. It would require two things:
(1) A fascist, authoritarian government.
(2) That government would be in possession of the perfect economic solution.
Problem with (1) is that people love their freedom. If anything, they want more, not less freedom.
Problem with (2) is that there is no such thing as a perfect theory that would deliver the perfect solution. The theory we have now is better than in Adam Smith's times, better than in Keynes' times, but it is still a work in progress. People in the know, economists, have taken 4 years of studies in universities, passing the courses, doing the assignments, succeeding in their exams. Then another minimum of 3 years in graduate schools, writing a thesis and defending it before peers, who can be very fussy and critical. Then they move on to universities, think tank institutions or government agencies, where they mingled with other economists, discussing exchanging ideas on a level not experienced by most folks. Now, if they can't solve the present problem, it is very unlikely that the common folks on the street will have those solutions. You may have an opinion, who doesn't, and it can look from the outside that the system is rigged, or there's a conspiracy to do you in, but that's a poor man's delusions ( by poor, I mean poor at the thinking level).
So now, these people are looking at negative interest rates. There are some countries already experimenting with that idea. How it will pan out remains to be seen.
Quote from: josephpalazzo on January 30, 2016, 09:22:02 AMWell in a way you are alluding to the cause, and to remedy that, you need to go to the elephant in the room, which politics, and that would not please you, and many others. It would require two things:
(1) A fascist, authoritarian government.
(2) That government would be in possession of the perfect economic solution.
So, for a government to do nothing and allow deflation, instead of being activist on the mistaken belief that deflation is always bad, we need an all powerful government in order to do that nothing.
Quote from: josephpalazzo on January 30, 2016, 09:22:02 AMProblem with (1) is that people love their freedom. If anything, they want more, not less freedom.
Although I tend to agree with Mencken about how much people love freedom, those who love it would rather have the government that stands back and does nothing. Which means deflation.
Quote from: josephpalazzo on January 30, 2016, 09:22:02 AMProblem with (2) is that there is no such thing as a perfect theory that would deliver the perfect solution. The theory we have now is better than in Adam Smith's times, better than in Keynes' times, but it is still a work in progress.
How many times does it have to fail before people notice that it is failing? We had the stagflation of the 1970s, the collapse was only averted by Paul Volker who recognized that inflation was a threat that had to be defeated. We had a breathing spell during the 80's and 90's which was wasted, leading to the collapse of 2001, 2008, and 2016 (all one collapse made worse by postponing the needed fixes).
Quote from: josephpalazzo on January 30, 2016, 09:22:02 AMSo now, these people are looking at negative interest rates. There are some countries already experimenting with that idea. How it will pan out remains to be seen.
Which will be a disaster.
QuoteQuote from: josephpalazzo
So now, these people are looking at negative interest rates. There are some countries already experimenting with that idea. How it will pan out remains to be seen.
QuoteQuote from: Jason Harvest Dancer
Which will be a disaster.
Everyone knows how damaging bubbles can be, and we hate them in hindsight. But people actually love bubbles. They're heady experiences that give an impression of unlimited wealth that comes fast, and during the bubbles investors become manic. If the truth be told, for as economically harmful bubbles are, people would love to live in them perpetually. So our government uses its tool kit to get over the bust and into the next bubble as fast as possible. People love bubbles. While those tools are powerful and can be very good, they help shorten the hard times, and then some bright spoon like George Bush decides that if the tools work well during the hard times, they must be even better during good times. So he comes into office with a financial surplus and immediately calls for lower taxes and lower interest rates. And it's not just George Bush. He just jumps into mind as the most flagrant. Now the others are following suit. They all want to preside over the bubbles, and just hope they will be gone during the bust, so people will say there was a great economy under George Bush, or Bozo, or whatever.
The latest talk (probably instigated by the oil companies) is how damaging low oil prices are. Really? The example currently given, points to the roughneck sitting on an idle oil rig, followed by a prediction of global depression. I don't want to see anyone lose their jobs, including the roughnecks that drill for oil. I don't want to see them lose their jobs anymore than all the people who were squeezed out of jobs when oil prices were so high that companies had to cut back. You never heard the oil industry complain when people were losing those jobs.
I think one of the names given to this phenomenon is "Supply and Demand" which is a corner stone of our beloved capitalism. It's a wonderful self regulating device that is fine and dandy unless it doesn't work to your advantage. Then the propaganda starts up while industrialists whine about not making egregious profit.
Remember a couple years back as oil started to slide? The industry began a campaign of why this was bad because they would stop exploring, and when the need for oil returned, prices would be even higher. Once again, it's called supply and demand. Now they've moved onto other arguments about why prices need to be high, and those arguments make me equally skeptical. I never heard the oil companies call for caution when the price of oil was wringing our economic necks.
NPR did a piece on this yesterday. They interviewed an analyst that apparently hadn't been sent by Shell Oil.
"Yes there can be some negative consequences of drastically low oil prices."
Well, can there be any positive consequences?
"Certainly," and he went on to list them. "So there is an equilibrium that comes into play where we can weigh the good against the bad."
But is it overall bad or overall good?
"Well, it's hard to say, but the indicators point to low oil prices having more favorable consequences than bad."
OK that's one guy's opinion, but obviously he's not the only one. Other news outlets seem to be pushing the doom and gloom of cheap oil for the obvious media attention, and the oil companies aren't complaining about that one bit.
I'm not an expert, but we live in a cynical world with a lot of bullshit being pedaled by our leadership. It's hard to know what the truth is. I've heard so much bullshit that my default position has become, "Don't believe what they tell you." Sometimes it's kind of fun to sift through the bullshit, and try to make sense out of it. But is also gets tiresome.
Quote from: SGOS on January 31, 2016, 12:10:05 AM
Everyone knows how damaging bubbles can be, and we hate them in hindsight. But people actually love bubbles. They're heady experiences that give an impression of unlimited wealth that comes fast, and during the bubbles investors become manic. If the truth be told, for as economically harmful bubbles are, people would love to live in them perpetually. So our government uses its tool kit to get over the bust and into the next bubble as fast as possible. People love bubbles. While those tools are powerful and can be very good, they help shorten the hard times, and then some bright spoon like George Bush decides that if the tools work well during the hard times, they must be even better during good times. So he comes into office with a financial surplus and immediately calls for lower taxes and lower interest rates. And it's not just George Bush. He just jumps into mind as the most flagrant. Now the others are following suit. They all want to preside over the bubbles, and just hope they will be gone during the bust, so people will say there was a great economy under George Bush, or Bozo, or whatever.
Good point about Bush. He did squander the surplus that the Clinton administration had left behind. His decision at the time was political rather than sound economic one. In recession, you accumulate deficits, but when the economy recovers and produces a surplus, it's time to lessen the debt. Bush campaigned in 2000 promising tax cuts with the slogan that "it's your money", and then the two wars and an expensive drug program without raising taxes, another blunder - such programs must be accompanied by tax increases. The disastrous consequence of these two blunders was when the country went into recession in 2008, the country was plunged into a much greater debt than if Bush had reduced it after his election in 2000.
BTW, the cycle of bust and boom is inevitable in human activities. You can trace these cycles all the way to the Roman empire, and probably existed even before. No country, or empire in the past, can really control these. It's like an asteroid, the size of the moon, moving at 100,000 miles/hr. You can't control that, just maybe you can deflect just enough so it won't crash on our planet. The economy is such a beast. We can accelerate or decelerate its activities, but only slightly. And timing is of great importance. Why economists keep track of a multitude of indicators - none of them are extremely precise, but together they often give forewarning signs. And then people elect politicians who are in it for their own interests and their buddies, and like Bush and his ilk, can cause some serious damage.
Quote from: Jason Harvestdancer on January 30, 2016, 05:32:31 PM
So, for a government to do nothing and allow deflation, instead of being activist on the mistaken belief that deflation is always bad, we need an all powerful government in order to do that nothing.
The option of doing nothing is always there. But lets look what would have happened if Bush, at the end of his mandate, and Obama, at the beginning of his, both had said, "Lets do nothing. We're going to let the economy crash. Let the banks go bankrupt, let GM go bankrupt, let AIG go bankrupt" and so on. You would have had millions of people out of work, millions of people losing their saving accounts, millions of people losing their money they invested in their pension funds. You would have the states going under with massive deficits that would have required to lay off thousands of policemen, firefighters, teachers, civil servants in just about every state from coast to coast, with thousands of firm who get government contracts out in the cold, laying off more people. Farmers would go bankrupt as no one would have the money to buy their food and so you would have rampant famine, and the crime rate would be shooting through the roof. If you think this is a solution, I can think of millions of people who will disagree with you.
Sometimes there is no good answer. This often happens in political-economics. Japan was one the first huge bubble of the post-gold era. They benefited more from Nixon going off the gold standard, initially, than anyone else. They had incredible levels of personal saving too. Now with the bubble, partly real estate just like elsewhere, they have been in deflation for 25 years ... and all their personal savings are gone too, put into Japanese government bonds. Those will pay eventually, just like the ones from the Weimar Republic. Pretty much everyone since the 90s have imitated the Japanese miracle/nightmare. Big bubble, partly enhanced thru independent money exchange rates (see China) ... followed by deflation. What do you think will happen in China, if they had the 25 - 50% youth unemployment rate of Europe?
There was no Clinton surplus. The national debt went up every year under Clinton. There was a tiny deficit. It was comparatively smaller than anything that had been seen for decades, so much so that even though he had nothing to do with it he should still get credit for such a tremendous achievement.
Do not diminish what his actual achievement by exaggerating it into falsehood.
As for a government doing nothing, I cannot imagine why even the most deluded of people would mention Bush Jr. in that context. Bailout Bush, whose final year he doubled his deficit and enabled Obama to claim that his deficits were half of those of Bush. They were half of the last year of Bush, equal to the previous years of Bush. Neither Bush nor Obama took a "hands off" approach to the recession of 2008, and the recession of 2016 is the result of their failing to take a "hands off" approach. Nobody can be so deluded as to think Bush and Obama stood by and did nothing. Nobody. Not even you Joe. Not even you are that deluded.
But ... but ... the Bush war budget was ... off budget ;-) We don't have to ever count war expenditures, like the Cold War etc. My accounting genie told me so!
Quote from: Jason Harvestdancer on January 31, 2016, 08:55:10 PM
There was no Clinton surplus. The national debt went up every year under Clinton. There was a tiny deficit. It was comparatively smaller than anything that had been seen for decades, so much so that even though he had nothing to do with it he should still get credit for such a tremendous achievement.
Do not diminish what his actual achievement by exaggerating it into falsehood.
As for a government doing nothing, I cannot imagine why even the most deluded of people would mention Bush Jr. in that context. Bailout Bush, whose final year he doubled his deficit and enabled Obama to claim that his deficits were half of those of Bush. They were half of the last year of Bush, equal to the previous years of Bush. Neither Bush nor Obama took a "hands off" approach to the recession of 2008, and the recession of 2016 is the result of their failing to take a "hands off" approach. Nobody can be so deluded as to think Bush and Obama stood by and did nothing. Nobody. Not even you Joe. Not even you are that deluded.
As usual in the past, you did not understand one thing about my last post. You're a waste. I will ignore your posts from now on.
Joe - just one relevant question ... if you have a money supply that grows slower than the economy ... isn't that deflationary?
http://www.shadowstats.com/alternate_data/money-supply-charts
What constitutes the money supply ... depends, just like any other economic question (what is the GDP). But certainly the money supply isn't matching the GDP curve (and with the US being the primary currency provider, you have to look at more than just the US GDP). The initial part of the current recession/depression was strongly negative on money supply growth. But though it has recovered a little, it might not yet be growing fast enough (in conventional economic theory let alone post-modern theory). The Big-Mac economic indicator matches the general impression that most countries are deflationary, based on using a common food item to iron out the currency trade distortions.
So Jason-H is right about our current deflation. Was it something else he said in response to you, that you objected to?
Quote from: Baruch on February 01, 2016, 06:59:48 AM
Joe - just one relevant question ... if you have a money supply that grows slower than the economy ... isn't that deflationary?
In a deflation, that is prices are falling, it means that demand is falling - (1) either people have lost confidence for whatever reasons, or (2) there is too much supply of goods/service in the market place. In either case, people will start to lose their jobs and the unemployment rate will start to increase. To offset that trend, if you want to do this, then you need to increase the money supply, with the four tools I've outlined in post #54.
The recent idea, negative interest rates, would take money away from people and usually this would decrease demand - you have fewer dollars, you're going to buy less. So one could think that this strategy is counter-productive. However, the thinking is that this will force many to not let their money sit in the banks but to go out and spend it, hence increase demand, which is the desirable goal. That's why this idea is controversial. No one knows for now how it will pan out.
Quote
So Jason-H is right about our current deflation. Was it something else he said in response to you, that you objected to?
My last post to him was a "what-if scenario":
what if Bush and Obama had done nothing, what would have happened? The consequence being that there would have been additionally millions of people who would have suffered. This is what he thinks that what should be done in a recession - do nothing. Instead of answering my arguments, either he willfully ignored my arguments or he's incapable of dealing with this kind of abstract thinking. Whatever, he's a waste of time.
The interest on Japan's negative interest (no pun intended) is getting more and more attention.
QuoteThe Japanese economy has been in the doldrums for about a decade and a half at this point. Back in 2012, Prime Minister Shinzo Abe rolled into office with a three-part plan of loose monetary policy, fiscal stimulus, and structural reform. But so far the results of "Abenomics" have been middling. So on Thursday, Japan's central bank decided to get unusually adventurous: They're gonna try negative interest rates.
To review: Interest rates are the price of lending and saving money. When interest rates throughout the economy are low, banks charge less for loans and individuals have less incentive to save; when they're high, lenders charge more and individuals save more. This is why central banks tighten interest rates when they're worried about inflation: Discouraging loans and encouraging individuals to sock their money away slows economic activity, which keeps inflation in check. Conversely, cutting interest rates in a recession encourages credit and consumption, which boosts job creation.
If interest rates could go negative â€" and banks started charging people for depositing their money â€" then this logic extends out: Not only would we be encouraging people to save less, we'd be actively penalizing them for saving rather than consuming. But the general assumption in economics has been that interest rates can't go below zero. Cash already has an implied interest rate of zero, so if banks started charging negative interest rates, people would just stuff paper cash in mattresses.
But in the last year and half, central banks throughout the advanced western world became desperate enough to start experimenting. In 2014, the European Central Bank (ECB) started charging eurozone banks a -0.2 percent interest rate. Central banks in Denmark and Switzerland set deposit rates at -0.75 percent, and Sweden set it at -1.1 percent. Last Thursday, the decision-makers at the Bank of Japan surprised international observers by getting in on the act as well: By a 5-to-4 vote, they decided to impose a -0.1 percent rate under certain circumstances.
Will it work? No one really knows, as the close vote indicates. But to even approximate an answer, we need to work through a few of the specifics of how central banks function.
As Scott Fullwiler, an economics professor at Wartburg College, explained to The Week, a central bank like the Bank of Japan is basically a bank for the rest of the banks in the economy. Those banks all hold reserves at their accounts at the central bank. They're constantly lending these reserves back and forth, and charge one another interest on those loans. That interest rate in turn filters out into the rest of the economy: A high interest rate between the banks means they'll charge higher interest rates throughout the rest of the economy, and vice versa.
Generally, central banks can change the interest rate on reserves by increasing or decreasing the total supply of reserves in the system: More supply means the interest rate goes down, less supply means it goes up. But at this point, like the U.S. Federal Reserve, the Bank of Japan has responded to economic downturns by flooding the system with reserves. "They've pushed the supply curve [for reserves] way beyond the demand curve," Fullwiler said. So interest rates on reserves hit zero. "But if you can charge people that are holding reserves? Well now the price is below zero."
So the Bank of Japan is applying a fiat charge of -0.1 percent to reserves, to drive the interest rate on them below the "market rate" of zero. But it will only apply to reserves that have been newly deposited at the Bank of Japan, and even then only on reserves that exceed certain limits. The Bank of Japan will also continue increasing the supply of reserves by buying up more government debt and other financial instruments as well.
One reason to think the Bank of Japan's gambit could help is that a lot of actors in the economy can't really "stuff money in the mattress" in practice. Big financial firms and corporations and the like are dealing with huge sums of money parked in all sorts of wild financial instruments. In many cases, turning those holdings into cash and thus escaping the bite of negative interest rates will just be prohibitively difficult and expensive. So they may well eat the cost of the negative interest rates, and respond to the incentive the way the Bank of Japan hopes they will. This may explain why the negative interest rates from the ECB and others haven't resulted in dysfunction.
But then, it's important to remember that banks are not passive lenders of capital, following orders from the central bank. Every individual bank makes pro-active, profit-driven decisions about when to create new loans and when not to.
"Banks make money on the spread between what they're receiving on their assets and what they're paying on their liabilities," Fullwiler continued. With a negative interest rate, "you've reduced the income they're receiving from their assets." So to maintain profitability, banks could cut interest rates on loans to attract new borrowers. But that still depends on how many opportunities for profitable investment there actually are. An economy in the doldrums â€" like Japan â€" is simply not going to provide too many attractive opportunities, so banks aren't going to invest much more. By lowering interest rates, a central bank gets out of the way if other banks want to issue new loans. But it can't make them want to.
But banks have other options to increase their income. "They can cut rates that they pay on their liabilities, like maybe a negative rate on their deposits," Fullwiler said. "Or they can find other sorts of fees to sneak in there, like increased fees on checking accounts and increased fees on ATMs and things like that." Those would discourage individuals from parking money at their banks, so they may spend more of it instead. That means more aggregate demand, which means more of the concrete economic activity and job creation banks do want to invest in.
The one problem is this relies on consumers who have money to save, i.e. more well-off ones. Poorer people in poorer communities can't be discouraged from saving money when they have no money to save. So fees and negative rates may boost demand in richer areas, but not in poorer ones. And Japan does have higher poverty rates and higher inequality than most western countries.
So, as Fullwiler concluded, changes in interest rates have very complicated effects on various parts of the economy. And -0.1 percent is pretty paltry if you're looking for negative rates to push the economy in one particular direction.
But all this also shows the more fundamental limitation of all central bank policy: It really can't help but be "trickle down." Fiscal policy is really the main tool that can move money into the economy from the bottom up. That means deficit spending by the central government. As big as Japan's deficits have been recently, and as bad as its demographic problem is, it still has tepid growth and rock-bottom inflation rates. Those two in combination are generally evidence that deficits aren't big enough.
http://theweek.com/articles/602283/could-bank-japans-crazy-gambit-actually-work
Why it would be wise to prepare for the next recession (http://www.ft.com/cms/s/0/11f38928-ca6f-11e5-be0b-b7ece4e953a0.html#axzz3zD0kRR3t)
Some excerpts:
Quote
Yet another instrument is negative interest rates, now used by the ECB, the BoJ and the central banks of Denmark, Sweden and Switzerland. With clever gimmicks, it is possible to impose negative rates on bank reserves at the margin, thereby generating negative interest rates in markets, without imposing negative rates on depositors. How far this can be pushed while cash is still an alternative is unclear. Beyond a certain point, people seek to move into cash-backed warehouse receipts, unless a penal tax were imposed on withdrawal from banks or cash were abolished altogether. Moreover, it is unclear how economically effective negative rates would be, apart from lowering the currency.
A final instrument is “helicopter money†â€" permanent monetary emission for the purpose of promoting purchases of goods and services either by the government or by households. From a monetary point of view, this is the equivalent of intentionally permanent QE. Of course, actual QE might become permanent after the event: that is now likely in Japan. Again, supposedly permanent monetary emission might turn out to have been temporary, after the event. But if the money went directly into additional spending by government or into lower taxes or to people’s bank accounts, it would surely have an effect. The crucial point is to leave control over the quantity to be emitted to central banks as part of their monetary remit.
Personally, I would prefer the last instrument. But at this stage it is crucial to recognize the great likelihood that something even more unconventional might have to be done next time. So prepare the ground beforehand. Central banks should be filling in these blanks now, not after the next recession hits.
Negative rates on government paper? Clever ... you get a ten year government bond, with -10% interest ... so that when you cash it in in 10 years, you not only don't get any interest, you don't get any principle either, if you hold it past maturity, then you owe the government even more money. Only an idiot would buy such a bond. What is planned, some say, is that you will be required indirectly to buy self-destruct bonds ... because your pension/IRA/401k/money market (credit union deposits) will be required to turn over their good assets, to the government in return for worthless government bonds.
And that is exactly what the Japanese did. Godzilla can't save them from their own gullibility.
The first sign of negative feedback from negative interest rates:
QuoteEuropean banks have been caught in a perfect storm of market turmoil, lately.
Lackluster profits and negative interest rates, have prompted investors to dump shares in the sector that was touted as one of the best investment ideas just a few months ago.
So what happened? At the end of last year, banks were singled out as one of the most popular sectors for 2016 because of expected benefits from higher bond yields, rising inflation expectations and improved economic growth. That outlook, however, was before the one-two punch of plunging oil and a slowdown in China sapped investor confidence world-wide.
...
But there is more to the sector slump than just the individual bank problems, according to Garnry. The negative interest rates set by the ECB means that banks effectively have to pay to have cash on their balance sheets, while at the same time getting squeezed on their net interest margins. Debt levels are already really high on the continent, which means further loan growth is expected to be low, he said.
Full article at: http://www.marketwatch.com/story/why-a-selloff-in-european-banks-is-ominous-2016-02-07