FINANCIAL REPRESSION - Negative Real Rates Coming
Get Ready For Negative Interest Rates In The US 01-24-15 ZH
With Fed mouthpiece Jon Hilsenrath warning - in no lesser status-quo narrative-deliverer than The Wall Street Journal - that The ECB's actions (and pre-emptive collapse in the EUR) means the U.S. economy must deal with a rapidly strengthening dollar that will make American goods more expensive abroad, potentially slowing both U.S. growth and inflation; and Treasury Secretary Lew coming out his crypt to mention "unfair FX moves," it appears The Fed (and powers that be) are worrying about King Dollar. This suggests, as Mises Canada's Patrick Barron predicts, the Fed will start charging negative interest rates on bank reserve accounts as the final tool in the war on savings and wealth in order to spur the Keynesian goal of increasing “aggregate demand”. If savers won’t spend their money, the government will take it from them.
As The Wall Street Journal explains,
The European Central Bank’s launch of an aggressive program this week to buy more than €1 trillion in bonds poses important tests for the U.S. economy and the Federal Reserve.
Europe’s new program of money printing—and the resulting fall in the euro—means the U.S. economy must deal with a rapidly strengthening dollar that will make American goods more expensive abroad.
The stronger dollar could slow both U.S. growth and inflation, giving the Fed some incentive to hold off on its plan to raise short-term interest rates later this year from near zero.
A stronger dollar has three important implications for the U.S. economy, markets and policy makers.
- First, it tamps down inflation just as the Fed is trying to raise inflation closer to 2%.
- Second, it hurts exports and therefore economic growth.
- Lastly, the attraction of U.S. financial assets could heat up markets just as regulators keep watch for dangerous asset bubbles.
U.S. officials have been playing down that scenario, and, more broadly, resisting talk of a global currency war—competitive devaluations by countries eager to keep their currencies as low as possible to protect exports; but “The Fed faces a challenge having to navigate some pretty intense cross currents,” said Bruce Kasman, chief economist for J.P. Morgan Chase.
The U.S., in effect, is importing some of the world’s downward inflation pressure through currency movements.
Treasury Secretray Lew pipes in...
- *LEW SAYS UNFAIR FX MOVES TO DRAW SCRUTINY FROM U.S.
- *LEW SAYS STRONG DOLLAR IS GOOD FOR AMERICA
* * *
And Patrick Barron predicts (via Mises Canada)...
I predict that the Fed will start charging negative interest rates on bank reserve accounts, which will ripple through the markets and result in negative interest rates on savings at banks.
I make this prediction only because it is the logical action of the Keynesian managers of our economy and monetary policy.
Our exporters will scream that they can’t sell goods overseas, due to the stronger dollar.
So, what is the Fed’s option? Follow the lead of Switzerland and Denmark and impose negative interest rates in order to drive down the foreign exchange rate of the dollar.
It is the final tool in the war on savings and wealth in order to spur the Keynesian goal of increasing “aggregate demand”.
If savers won’t spend their money, the government will take it from them