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Category Archives: ZIRP

“Helicopter Money”


Helicopter Money [courtesy Google Images]

Helicopter Money
[courtesy Google Images]

Control of the economy is based on two sets of powers:

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1) The Federal Reserve wields the monetary powers which include control over interest rate and over the supply of currency.

2) The U.S. government wields the fiscal powers which include raising or lowering taxes, raising or lowering borrowing, and increasing or decreasing government spending on benefits, subsidies and wars.

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For the past year, we’ve heard the Federal Reserve say repeatedly that:

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1) The Federal Reserve has exhausted its monetary powers and is no longer capable of using previous, “conventional” monetary strategies like QE (Quantitative Easing; printing and injecting more currency into the economy) and ZIRP (near-Zero Interest Rate Policy) to stimulate the economy back to a “recovery”.

I believe the Federal Reserve’s claims that it’s currently helpless to do much more to “stimulate” the economy with monetary policy are true.

If the Fed’s not fibbing, then only the U.S. government remains to engineer an economic “recovery” by means of its fiscal policy. However,

2) The U.S. government is unwilling or unable use its fiscal powers to raise taxes and/or borrow more currency to provide enough additional “stimulation” to cause an economic recovery.

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The Trouble with NIRP


ZIRP (Zero Interest Rate Policy) gives way to NIRP (Negative Interest Rate Policy) [courtesy Google Images]

ZIRP (Zero Interest Rate Policy) gives way to NIRP (Negative Interest Rate Policy)
[courtesy Google Images]

Speaking of NIRP (Negative Interest Rate Policy) Andy Hoffman recently wrote,

 

“I now believe negative interest rates for the entire world is inevitable; and with them, the imposition of increasingly draconian capital controls—from FATCA and FBAR-like reporting requirements; to limitations on withdrawals and capital exportation; and ultimately, “cashless societies” in which investors are forced to hold savings as digital deposits at insolvent banks—In which, arbitrary government decrees like negative interest rates—will be used to not only confiscate wealth, but destroy all remaining remnants of capitalism.”

 

A dire warning, indeed—but what, exactly, is “NIRP”?

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Armed Debt Collectors = Government Desperation


Government Debt Collectors [courtesy Google Images]

Student Loan Debt Collectors
[courtesy Google Images]

In last week’s article, Placebo Economics, I compared the Federal Reserve’s primary strategies (Quantitative Easing and Zero Interest Rate Policy) for dealing with the recession to medical “placebos”.  I.e., they had little or no fundamental effect in themselves, but might still be useful so long as the public believed in them.

I wrote in part:

 

“ZIRP [Zero Interest Rate Policy] and QE [Quantitative Easing] have failed in Japan, the EU and US because the [people] no longer believe in the efficacy of those economic “placebos” or the wisdom of our “witch doctors” in the Federal Reserve and/or federal government.

“Once we stop believing in the ‘witch doctors’ at the Federal Reserve, how will the Fed ever restore our belief and confidence in their economic placebos?  Once we know that our witch doctors have nothing real (like gold- or silver-based money) to offer us and can only provide intrinsically-worthless placebos (fiat dollars; promises to pay rather than actual payments), the economy will not be healed by mumbo-jumbo and our economic witch doctors may be run out of town on rails.

“If the previous conjecture is roughly correct, the way back to prosperity will not be achieved by means of more placebos.  It will be achieved only by means of hard work and the “real medicine” of physical gold and silver.”

I was mistaken.  There is another possible “way” back to prosperity besides by means of hard work, gold and silver.  I don’t think this alternative “way” will work.  But the temptation to try it will be almost irresistible.  I have little doubt that that “way” will be tried by the Federal Reserve and/or the federal government.

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Germany’s Finance Minister: “the debt-financed growth model had reached its limits”!


G20 Shanghai "Don't Blame Us!" [courtesy Google Images]

G20 Shanghai
“Don’t Blame Us!”
[courtesy Google Images]

Reuters (“G20 to say world needs to look beyond ultra-easy policy for growth”):

 

“The world’s top economies declared on Saturday that they need to look beyond ultra-low interest rates and printing money to shake the global economy out of its torpor, while renewing their focus on structural reform to spark activity.”

 

Telling the world to “look beyond ultra-low interest rates and printing money,” is central bankers’ code for:

1)  QE (Quantitative Easing) and ZIRP (Zero Interest Rate Policies) don’t work; and, therefore,

2)  Don’t expect much more QE of ZIRP in the future.

Without more QE and ZIRP, there’ll be less artificial support for stock markets and market indices can be expected to fall sharply.

The banker’s comments may even signal that there won’t be as much market manipulation as we’ve had in the past.  If so, the prices of gold and silver should rise.

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Interest Rate Manipulation Fails


Interest Rate Manipulation is Income Redistribution [courtesy Google Images]

Interest Rate Manipulation is Income Redistribution
[courtesy Google Images]

On February 9th, Business Insider Australia published “CARNAGE IN JAPAN:  Nikkei’s largest fall in years, yen spikes, government bond yields below 0%” which said in part:

 

“On Monday [February 8th], the benchmark Nikkei 225 index lost more than 900 points, closing the session at 16,085.44.  The 5.4% one-day decline was the largest since June 13, 2013 . . . .  Since January 29th, the day the Bank of Japan adopted a negative-interest-rate policy, the Nikkei index has lost more than 10%.”

Since mid-December, when the U.S. Federal Reserve increased the U.S. interest rate by 0.25%, the U.S. stock market has also suffered a significant decline.

Japan lowered its interest rates to zero—and then to a negative interest rate—their stock markets fell.

The U.S. raised interests from 0.25% to 0.50%, and the US stock markets fell.

The world’s stock market indices are falling. Judging by the US and Japanese recent experiences with raising—and lowering—interest rates, interest rate manipulation is insufficient to overcome whatever forces are causing the market declines.

This implies that neither the Bank of Japan nor the Federal Reserve has any viable tools–including interest rate manipulation–that can reliably stimulate the economy and withstand the forces of economic depression.

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A “real” economy vs. an “unreal”?


Market Manipulation by the Federal Reserve [courtesy Google Images]

Market Manipulation by the Federal Reserve
[courtesy Google Images]

Richard Fisher was the president and CEO of the Federal Reserve Bank of Dallas from A.D. 2005 to A.D. 2015 . He’s now a director of PepsiCo and ATT, a senior advisor to Barclays, and a CNBC contributor. The man is accomplished and “connected”.  We he talks, we’d do well to listen closely.

In reaction to the dramatic stock market sell-off during the first week of A.D. 2016, Mr. Fisher “talked” in a recent article entitled “Don’t blame China for the sell-off”:

 

•  Fisher:

 

“Recent volatility and downside slippage in the equity markets has been ascribed to China and the potential for slowing global economic growth. To be sure, these are factors worth watching but they are hardly newsworthy.

“While I would not completely pooh-pooh the effect of developments in China on the rest of the global economy, I believe another factor is of greater importance in pricing the U.S. stock market going forward: the effect of accommodative Federal Reserve policy.”

 

Mr. Fisher is telling us that, contrary to popular opinion, the recent US stock market fall was not triggered by China’s economic problems—it was caused by Federal Reserve policies.

Few would be surprised by Mr. Fisher’s statement.  We all pretty much suspect that the Fed is responsible for the current economic problems.  Still, given that a former president of the Dallas Federal Reserve Bank is making these admissions, they are amazing.

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