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Tag Archives: QE

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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Chart: The World is Turning Japanese


NEGATIVE RATES, KURODA’S “PETER PAN” ANALOGY, AND GOLD’S SURGE

Nearly a year ago, Bank of Japan governor Haruhiko Kuroda described the unlikely inspiration behind Japan’s unprecedented monetary stimulus: Peter Pan.

Why am I not surprised?

I’m highly amused, of course–but not surprised.  The world’s economists have begun to emulate Pan’s “Lost Boys”.

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Posted by on February 12, 2016 in Economic collapse, Negative interest rates

 

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World’s Savior: “Helicopter Money”?


Helicopter Money: Modern Manna? [courtesy Google Images]

Helicopter Money: Modern Manna?
[courtesy Google Images]

We live in times that are not merely “interesting” but spectacularly so.

According to Zero Hedge.com (“Helicopter Money Arrives: Switzerland To Hand Out $2500 Monthly To All Citizens”),

 

Citi Bank’s chief economist has recently proclaimed that, ‘only helicopter money can save the world now’.

The Finns are considering a ‘basic monthly income’ for the entire population.

“And soon, Swiss residents are to vote on a countrywide referendum about a radical plan to pay every single adult a guaranteed income of around $2500 per month, with authorities insisting that people will still want to find a job. . . .  Under the proposed initiative . . . each child would also receive 625 francs ($750) a month.”

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When Draghi Talks, Everyone Listens?


European Central Bank President Mario Draghi pontificates [courtesy Google Image]

European Central Bank President Mario Draghi pontificates
[courtesy Google Image]

On Friday, December 4th CNBC posted an article entitled, “Dow briefly adds 350 points after jobs, Draghi”:

 

“U.S. stocks traded nearly 2 percent higher Friday . . . as investors cheered a solid jobs report and remarks from ECB President Mario Draghi.

“Equities extended gains in early afternoon trade as European Central Bank President Mario Draghi said in a New York speech that “there is no particular limit to how we can deploy any of our tools. 

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Posted by on December 7, 2015 in Banking, Economic collapse, Quantitative Easing

 

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Crazy Ideas


The Economists' Motto [courtesy Google Images]

The Economists’ Motto
[courtesy Google Images]

Business Insider published an article entitled “This is how a central bank could kill off cash and bring in negative interest rates on your savings.”  According to that article,

 

“Since the financial crisis, the world’s understanding of economics has been undergoing a lot of rapid changeIdeas that would have been considered crazy just a decade ago are now seen as much more likely.”

 

The balance of the Business Insider article focused on “negative interest rates” as one of those “crazy” ideas.  Negative interest rates are undoubtedly “interesting” but, for now, I’m more interested in asking why “crazy” ideas are becoming “more likely”.

Most of this inquiry deals with “crazy” but a lesser part deals with “more likely”.

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