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Old Yesterday, 10:18 AM
 
1,967 posts, read 656,014 times
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Quote:
Originally Posted by redguard57 View Post
This is pretty much it.

That said, the chatter is that the Fed is going to "slash" interest rates, which I take to mean probably 100 basis points. So Trump probably is foreshadowing a significant drop in interest rates.

How this short term thinking is going to screw us is:

When there is an actual recession, the Fed will have no more arrows in its quiver to respond. Regardless of the outcome of the 2020 presidential election, we are very likely to have divided government - the Senate will probably stay Republican and the House Democratic. That means the government will be dysfunctional and powerless to provide any stimulus.

The Feds QE provided the stimulus that the government could not after 2010. They should have increased interest rates back to at least the 4% range in the mid-late 2010s, but they never got that far.

So we are expending all our economic ammunition before the real battle commences.
I used to be of this opinion, but when I asked, "where would investors flee treasuries for in the case of negative UST rates?" I couldn't come up with an answer.

Many other developed economies already have negative interest rates. In the case of a recession, this number will only increase. USTs will probably still have the highest rate, albeit it will be negative.

Equities worldwide are increasingly synced, so I doubt if US equities are declining in value that another major economy's equities will be rising.

The US already popped its housing bubble in 2008. Other countries like Canada, Australia, and many European countries still have huge housing bubbles, which will put pressure on their governments to reflate with even lower negative interest rates than the US.

Commodities could be an answer for a time, but investing in physical currency or gold and storing in a safe is too complicated (and expensive - safes aren't free to buy or install). Rates would have to be negative for a long time to justify the expense and hassle.

The whole world is trying to beggar their neighbor Uncle Sam with lower interest rates. This won't stop if the US goes negative, so the dollar will still be king. Even if savers slowly lose wealth in the US, they will be losing wealth more slowly than savers in other countries. This is all relative.

If anything, US negative rates will drive foreign banking systems to the breaking point and drain competing financial elites of money faster. Negative rates aren't so bad if you have the highest negative rate.

We are in uncharted territory so I'm not sure of these predictions. I could be swayed again by events. But the super-low rates across the developed world make me think other countries are driving this change, not the US or Trump. If something really bad is going to happen, they'll be the guinea pigs and we can pull back.
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Old Yesterday, 10:21 AM
 
1,967 posts, read 656,014 times
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Quote:
Originally Posted by PacoMartin View Post
Trump tweets that he favors zero or negative interest rates in order to prevent a recession. While these rates are popular in Japan and Europe, they have never been tried in the USA.

Negative interest rates, in particular, frighten many Americans because they fear that the commercial banks will increase fees on savings account to pass on the costs.

The 10,000 JPY banknote worth $92.75 in USD is extremely popular in Japan because they can keep their wealth in home safes. Circulation of these banknotes is between 9 and 10 billion notes for a population of roughly 126 million.

While the FED reports that there are 13.435 billion $100 banknotes are in circulation as of the end of 2018 for a population of about 330 million, upwards to 75% of the Benjamins are believed to be in circulation in foreign countries.

Will Trump's tweet cause a bank run on $100 bills? Will calls for the government to re-issue the $500 banknote increase?
European banks have not passed on negative rates to consumers yet. The first bank to do so will see a huge outflow of deposits so no bank wants to make the first move. It's a game of chicken and so far European banks have been eating the losses.

I think it would play out the same in the US, so the Fed could have one or two years of negative rates without retail deposit rates going negative.
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Old Yesterday, 10:23 AM
 
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Quote:
Originally Posted by RJ312 View Post
He wants to get re-elected and the economy not being in recession would be a big factor in getting re-elected.
Also, US interest rates are currently much higher than competing economies' rates. This isn't just about re-election, it's also about labor cost competitiveness.
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Old Yesterday, 10:25 AM
 
Location: East Coast of the United States
17,645 posts, read 19,878,707 times
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If the interest rate goes negative, does that mean my mortgage company will give me a check each month for living in the house?
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Old Yesterday, 10:28 AM
 
1,967 posts, read 656,014 times
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Quote:
Originally Posted by BigCityDreamer View Post
If the interest rate goes negative, does that mean my mortgage company will give me a check each month for living in the house?
Stay tuned https://www.cnbc.com/2019/08/12/dani...est-rates.html
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Old Yesterday, 10:30 AM
 
Location: Seattle
1,593 posts, read 332,614 times
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MarketWatch has an interesting article on the potential impact of negative interest rates:

https://www.marketwatch.com/story/tr...ngs-2019-09-12

It's not good news for retirees or those close to it.
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Old Yesterday, 11:17 AM
 
Location: Washington Park, Denver
7,097 posts, read 6,734,184 times
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Quote:
Originally Posted by Avondalist View Post
Also, US interest rates are currently much higher than competing economies' rates. This isn't just about re-election, it's also about labor cost competitiveness.
You’re confusing nominal rates and real rates.
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Old Yesterday, 11:58 AM
 
1,967 posts, read 656,014 times
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Quote:
Originally Posted by SkyDog77 View Post
You’re confusing nominal rates and real rates.
This was the best data set I could find, and it's missing Germany and France, and recent data for other countries including the US. The recent nominal rate changes are what is driving this discussion.

https://data.worldbank.org/indicator...008&view=chart

In the selected countries that had data, only Australia, New Zealand, and South Korea had higher real interest rates.

If you have a better source I'd be interested to see it.
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Old Yesterday, 12:05 PM
 
10,791 posts, read 16,015,912 times
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fear that the commercial banks will increase fees on savings account to pass on the costs.

What costs? Banks use 90% of deposits to invest where they want to. Only 10% liquid cash is required to guarantee deposits. They will have "costs" on top of that willingly given to them gold bonanza?

Tweet Trump back and tell him to ban fees along with zero rates.
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Old Yesterday, 12:44 PM
 
9,084 posts, read 4,041,652 times
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Quote:
Originally Posted by ukrkoz View Post
fear that the commercial banks will increase fees on savings account to pass on the costs.

What costs? Banks use 90% of deposits to invest where they want to. Only 10% liquid cash is required to guarantee deposits. They will have "costs" on top of that willingly given to them gold bonanza?

Tweet Trump back and tell him to ban fees along with zero rates.
Commercial banks will raise fees when necessary. But Federal Reserve member banks don't need your deposits for anything, as they are still awash with QE created excess reserves. And the Fed pays them to sit on the money.

https://fred.stlouisfed.org/series/EXCSRESNS

https://fredblog.stlouisfed.org/2018...cess-reserves/
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