The Federal Reserve is in a real crisis. Interest rates are falling negative around the world which by no means has succeeded in stimulating anything. Governments are dead broke and they keep raising taxes yet hope the central bank can compensate by lowering interest rates to negative. Between rising Taxes and declining interest rates, this toxic-mix is destroying pension funds and wiping out the elderly. There is nobody in government who has any common sense to see this is going to wipe out the economy – not stimulate anything.
The Federal Reserve has been talking to U.S. banks behind the curtain and asking them to consider that the Fed might have to do the same to stop the capital inflows. In its annual stress test, the Fed will assess the ability of big banks to survive a drop to negative rates on the three-month U.S. Treasury bill, which simply becomes prolonged.
The central bank announced the stress test for 2016 last week, commenting, “The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities.”
The Fed pays 0.25% on excess reserves and that drives much of the capital inflow. Foreign banks have used their U.S. branches to get in on the game. They are shipping in cash from Europe and Asia, and they do not lend and park it at the Fed. Taking rates negative will only create a real financial crisis for as long as the Fed continues to pay 0.25% on excess reserves. A bank will be able to charge you to keep money there, so park it at the Fed and make a 100% riskless trade. This is the ultimate wet dream for Goldman Sachs especially.
Negative Interest Rates will flip investment and drive capital into the stock market just for yield. If pension funds do not dump government debt, they will go bankrupt. This is totally insane and even Social Security will collapse.
Insane? Sounds perfectly logical to a pigfuck government drone.
The Fed’s problems are the same as most of Western civilizations problems.
It has pursued unrealistic ideal and goals that are unattainable but has ingrained them into the system’s core so deeply that they are now systemic problems that cannot be solved without destroying the system at its core.
This is not going to end well.
Fiat money was just an attempt to pay for today on the backs of those who can’t fight back — the unborn.
Psst, hay kid come here; have I got a deal for you. Sign here and you can have a new car. Atta Boy, sign here and you can go to college and get a degree. Sign here for a Gold Card. Come here, sign here for your new house. Want a honeymoon in Hawaii, just sign here. What could go wrong?
“The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities.”
Global recession?
The State Council did not say when the cuts would be made, but China, which produces half of the world’s steel, has already cut capacity by 90 million tons in response to the growing slowdown in the Chinese and world economy, and is under enormous pressure to do more. Along with the cuts already made, the new cuts will amount to about a 20 percent reduction in steelmaking capacity.
The reductions will have an enormous impact on Chinese workers. In addition to those directly employed in steel making, it is estimated that for every job lost in steel, another 3 jobs are lost in related and supporting industries.
Three million workers in the steel, coal, cement, aluminum and glass industries are expected to lose their jobs in the next few years as these industries seek to cut production by 30 percent.
Had a friend, other day, told me JP Morgan\Chase said they would give them a $100,000 loan. Works for $10 an hour.
Maff is hard with dollar signs before your eyes.
The Fed can still keep the ponzi going as long as some suckers…er buyers are buying treasuries to keep this phoney baloney currency from crashing. They may have one or two more tools in the toolbox to work with when this fails but sooner or later the toolbox will be empty.
Are you prepared?
It’s completely the fault of the banks, governments and the FED who reneged on the promise to pay back in 1972 when Nixon closed the convertibility to the “gold” window. You see you can’t have unbridled growth (even when you are the world’s reserve currency(petro dollar) when your promises are backed by nothing. Sooner or later, the economic cycle will break down, when you create money out of thin air (fiat),the promise gets broken. Who takes the hit? Senior’s first, (saver’s are chumps) followed by lower middle class, then the big wave, (those who went in debt full Monty) the upper middle class, etc. Who wins? Big banks, and the top .01%.
As it was in Rome 476AD…. so it is today 2016AD
The good news is??….. you get to see it all unfold right before your very own eyes.
The next target buyers of treasuries will be the schmucks who have not cleaned out their 401K or retirement account. Don’t have to tell you how that will end, now do I ?
It takes time and effort to move funds to hard assets so it may be too late in the ballgame, but I would still try my best if I were in that position.
The banks are so screwed up.
My son had no problem securing a $250k loan for a used 38′ sailboat. But try and borrow $230k for a storage building that returns income?
So solly Chally.
Negative rates? The bernanke has been saying for months the fed will have to go neg to stave off the next financial collapse, that the fed and the puppets we have elected created.
He said they can fix this, (for wallstreet) really, the rest of you tax serfs can just eat shit and die.
@Bea: Sorry – but we’re past the point you make. The sole purchaser of Treasury Debt right now is the Federal Reserve. The Federal Reserve then gives (for free) the proceeds to the banks. Rather than lend money, the banks, in turn, deposit the money back into Fed where they are paid interest on it.
This is the biggest Ponzi circle jerk in the history of man’s attempt to manipulate “money”..
This will change somewhat as the rest of the world tries desperately to move assets and “money” into the USA in the misbelief that the USA can, yet once again, save the world. It will probably result in runaway inflation for us but time will tell on that one.
It will make the Weimar collapse look like a tea party (not the political one).
MA
All the talk about getting everything (except monthly
operating capital) out of banks, may be silly. Just try it!!
So, you can get it out only by spending it. Buying things
or something. Selling off the 401K “and something is better than nothing”
advice, means you have to quit your job. So, you get the $. Then what?
You have to buy things. Or you would have too much $ in the bank.
We are trapped and at the mercy of banks.
Oh right, I know…buy PM and farmland. Just the advice the everyday
Joe can use.
I would say, pay off all debt, acquire property away from any city, stock it,
and hope that buys time B4 you get crushed some other way.
Anyone have another idea? I could really use it.
@Suzy: Your conclusive paragraph has it just right. Not many people even understand what’s going on and for you, “you get crushed some other way” eventually.
At this point and time, we are already on the slide that has no brakes – oh wrong – it has brakes but it would take a Paul Volker and the National Guard to do the job.
Jack interest rates back up to their historical levels, let’s the banks run into the ditches (all over the world) and suffer through the depression that would follow. If the Fed’s did that and did nothing to “fix it”, we’d suffer a year or two (soup kitchens and all) and then begin a recovery.
The politicos these days don’t have the balls to even try it. They will extend and pretend until it all falls apart anyhow and then the National Guard, our militarized police and by ignoring the Constitution, the armed forces will be used to maintain some order – but there will be a big die off anyhow.
Cheerful, huh?
MA
@MA
Thanks,
Sounds good. Interest rates at 5% for account holders,
7-10% for borrowers. Let the chips fall where they may.
I can’t be cheerful. Maybe next time.