From Birch Gold Group
According to “big economic players” cited in the Fed’s Financial Stability Report (FSR) from November 15, trade frictions are the highest risk to the U.S. economy.
We have reported on that grave risk several times this year, so it’s somewhat old news. But what’s truly alarming is what the Fed’s report identified as the second-highest risk to the U.S. economy…
The Fed fears that “reversal rates” may be settling in.
Wolf Richter explains what these rates are in layman’s terms:
“Reversal rates” is the term for a situation where interest rates are so low that they’re doing more harm than good to the overall economy, and that lowering rates further will screw up the economy rather than boost it.
In discussions about other central banks having already adopted radical monetary policy like negative rates, some Federal Reserve “contacts” think that they are suffering negative effects:
The second most widely cited risk centered on the efficacy of U.S. and other advanced-economy monetary policies.[…] Relatedly, some contacts argued that select foreign central banks with negative policy rates were either close to or beyond reversal rates, which are the rates at which the negative effects of incremental easing—for example, weaker profitability of financial institutions or higher precautionary savings from retirees—might offset positive growth impulses.
These same contacts also “express concern that a recession could expose leveraged sectors and untested market structures.”
Leveraged sectors include leveraged loans, risky mortgages, and junk bonds, to name a few.
So the Fed may be right, and the U.S. could be close to “reversal rates.” The excessively risky debt, plus the Fed’s already low rates, could represent a “one-two” punch that puts banks in a terrible situation. Terrible for the economy, too.
The Dow currently sits around 28,000, giving the appearance that all is well. But it could come crashing down at any time, especially given the concerns of the Fed.
Which begs the question: What might the Federal Reserve do to avoid a catastrophe?
Fed Unlikely to Adopt Negative Rates to Steer the U.S. Economy
In terms of the policy tools the Federal Reserve might use to try to minimize the risk of “reversal rates,” the recent FOMC meeting minutes provide a clue:
In considering policy tools that the Federal Reserve had not used in the recent past, participants discussed the benefits and costs of using balance sheet tools to cap rates on short- or long-maturity Treasury securities through open market operations as necessary.
Other tools mentioned included capping long-term interest rates on business and household spending, but FOMC members didn’t seem to like that option.
It appears that the idea of negative rates is off the table for now though, as the FOMC minutes stated, “All participants judged that negative interest rates currently did not appear to be an attractive monetary policy tool in the United States.”
The main reason given for this line of thinking was that the U.S. economy is “different from those in countries that implemented negative interest rate policies.” Participants were worried negative rates may have adverse effects in the U.S., like “introducing significant complexity or distortions to the financial system.”
In other words, the seemingly confused Fed is clamoring to regain control of monetary policy by controlling rates, but doesn’t want to make an already-complex problem worse.
The “distortions” the Fed is concerned about may happen anyway, because as Wolf Richter points out, when pushing rates lower no longer benefits the economy, “This is the point where ‘reversal rates’ set in.”
So it may be a good thing the U.S. won’t be implementing negative rates, at least for now. After all, Wolf Richter points out in another article that in Europe, negative rates are “coming under increasingly heavy criticism for the damage that they do, including to the banking system and pension funds.”
But the Fed has cut rates three times already, and who knows if that has even helped the situation? The recent repo rate snafu shows otherwise.
Raising rates hasn’t worked. Lowering rates hasn’t seemed to work either. So Powell could be close to the point where he may have to consider a radical move like implementing negative rates. (And with what is happening in Europe, we already know where his decision could lead U.S. banks.)
Prepare for the U.S. Economy to Sink (But Hope for the Best)
While this new “reversal rate” scenario plays itself out, you can certainly hope for the best, but it’s always wise to prepare for the worst.
Moving some of your funds into assets like physical gold and silver can be a smart move to protect your retirement in case this whole situation gets worse.
With global tensions spiking, thousands of Americans are moving their IRA or 401(k) into an IRA backed by physical gold. Now, thanks to a little-known IRS Tax Law, you can too. Learn how with a free info kit on gold from Birch Gold Group. It reveals how physical precious metals can protect your savings, and how to open a Gold IRA. Click here to get your free Info Kit on Gold.
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One world currency is about 4 or so years away…..The Mark 666…….no silver or gold will be used.
Sweeping pronouncement, so you don’t even see (after the dollar collapses) a SDR World Currency Backed with Gold? As the Central Banksters are buying Gold at massive rates.
Just pure crypto run by the Banksters?
Are you seeing this post Rapture?
Just curious. Flesh it out.
First things first: going negative may, imho, be 1,000X more powerful (and destructive) than pouring gasoline onto the fire. American savers may well act out a lot differently than people in countries that have already gone negative. No “proof”-just a gut feel. Who in goobermint has even a smidgen of credibility to snuff out massive bank runs? Sure, they can close the doors, but then what comes next?
Where’s Timothy Geithner when we need him?
Oh, he’s working on his overdue tax returns and cannot come to the phone. (massive sarc intended).
They will allow bank runs via electronic eft transfers and deposits. Just getting cash is the problem. They will say it takes too long to ship the paper bills so they will allow u to spend your total assets if you choose by means of debit card. This is how they will usher in crypto. They will say there are not enough paper bills and it costs too much to print and ship in expedited manner just use your debit cards people. They will keep that narrative up for years until the old generation dies and the millennials don’t know what paper money looks like.
Problem is all money and most currency must be hard to duplicate as history shows. Sure in 210 AD you could hammer out a coin but not from gold unless you dug it up. If crypto becomes the norm there will be hackers for the highest bidders stealing and creating ones and zeros with no physical labor and nothing of value like a gold coin which takes both. That will be the end game because the hackers will be working for the bankers, govt peoples, and elites while you and me are stupid enough to swap our labor for ones and zeros. Then eventually people will finally wake up, when they are then disarmed and try and make a stand….too late of course. They/we all deserve what they/we get.
I was curious on how Anon saw it playing out – with him thinking the Mark of the Beast is coming by 2023, but I guess he didn’t want to explain. I think that is too early, plus I’m Pre-Wrath not Pre-Trib, so I’m planning on relentless persecution coming we won’t be escaping, before, during, and after Economic Collapse or Civil War 2 hits. No matter what one comes first, I believe one will trigger the other.
As far as my plans on what I can control, I have had about 50% of my ‘savings’ long outside the banksters greedy grip (Pms & Cash) 48% of the rest is being turned into a second home over the next five to six months, 2% will be left with the Banksters just to pay bills and conduct a small internet business. When necessary I will then be able to house five families, and we will have five well-armed men with communication and prepared interconnecting fixed positions ready to defend the woman and children from.
So if TSHTF can hold off long enough, that will leave me 98% into Hard Assets/Prep/Barter of all types, farming – self/sufficiency improving constantly, no debt, armed to the teeth, building community with neighbors (some of who are Preppers or starting to become one). I also will be reaching out to a new Sheriff and have a close friend (of a like mind) who is a Deputy.
Like to come here and get everyone’s opinion and thoughts while focusing on what I can control no matter who is right.
In some ways, we are ahead (place and outbuildings are pretty much built and ready for the trial run.) Others, not.
We realized we are not yet ready to slaughter and butcher our own large game animals. With the mixup over tagging the beastie (a funny story and we met a nice Missouri Ranger who was from Risco, near my old stomping grounds in the flatlands) we decided we will do our own processing next year. It really is none of the government’s business if we slaughter our own meat here on our own land.
However, if you want it butchered and wrapped locally, you will need a tag. And that tag better have the correct name on it. 😀
You hunting this year, Mark? We haven’t even seen a deer since the last day of the season. They all moved away until New Year’s, I guess.
Meat will be useful to trade. I freeze it and am going to learn how to make good jerky. This yearling buck made some of the best jerky I’ve ever tasted.
Maggie,
I’m not a hunter. Although I could become one. I do trap and feed the vultures with all the pests. There are deer all around my place (and occasionally in my orchard) but also plenty of hunters all around…my place is heavily posted, so far no problems. In NC you can use purple spray paint on trees and that legally has equal weight in court as a No Trespassing sign. I have a lot of purple trees.
In a SHTF scenario I believe the deer would be hunted out quickly.
Besides chickens, I have two rabbit cages in the barn. Have a relationship with a local man (real character, lives by himself, former coyote hunter from upstate NY) who raises and sells, chickens, rabbits, and goats. He and I will be big time barter partners – as I have stashed a mini mart in my hay loft. I will at some point try rabbits next, then goats. Maybe after the house is finished or I suspect we are real close to SHTF. Have a bay in the barn ready for goats and plenty of fencing.
I don’t have the rabbit/goat experience, but all the books, and friends at Church that I will lean on when it comes time.
I’m a believer in wide and deep long term food prep, as well as self-sufficient production.
Have a well-stocked pond, bass, blue gill, brim, and catfish, I aerate and feed them regularly. A spring fed pond is one of the reasons I bought the land.
During that brief period when cash is king, I will be buying additional rolls of toilet paper.
We all have our priorities.
Maggie,
I stashed and stacked a lot in the barn, but just in case also bought a dozen reusable sponges, and lots of boxes of those thin plastic gloves for wearing when washing/rinsing out the sponges. Boo Coo quality metal buckets and gallons of disinfectant.
Put in two outhouses as well, stashed plenty of lime, and have a couple of camping toilets.
Putting a tank-less toilet in the basement of the new house as well. Will have a gravity fed septic system, got lucky with the lay of the land.
When the shit hits the fan…most people will be getting sick from their own shit. I doubt 20% of the populations understands that, and most Americans will not be prepared for toilets that don’t flush.
My Father called it: “The Rude Awakening”.
Digital for the goyim who need to be tracked at all times and penalized now and then.
Gold for the ((banksters)) interacting among themselves, since honor among ((thieves)) has its limits.
Post rapture: Whatever medium good folks find convenient at the time.
Every financial decision that is influenced by the ARTIFICIAL establishment of an arbitrary interest rate, is a detriment to the long-term health of the economy. NOTHING other than the infinite wisdom of the free market, should be allowed to establish the cost of money (interest) in any given situation.
One thing they the feds reuse to state is this is what happens to all fist currencies, they tend to end in a large mushroom cloud. The ponzi schemes can go on only so long. There is writing on the wall and they refuse to see it because fiat is all they know. Talking to the fed about a gold backed currency is like talking to a democrat about patriotism. They both look at you as if you are crazy and insulted them.