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from the above:

"A study by the San Francisco Fed said the interest rates need to be –4.5pc to stabilise the economy under the Fed's "rule of thumb".

oh eck

if it weren't for the genuine prospect of utter ruin, hunger and war, this would all be darkly funny.

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from the above:

"A study by the San Francisco Fed said the interest rates need to be –4.5pc to stabilise the economy under the Fed's "rule of thumb".

oh eck

Scepticus I read a way to do negative interest rates without actually putting rates negative. With rebates on interest paid. So say you could get a variable for 3% at a big bank. The central bank would give you a 'rebate' of say 1/3rd of the interest you paid for the year. Which in that case would work out to 1%. With base rates at 0.5%, this is an 'effective' interest rate of -0.5%.

For someone paying 6% interest, say on a riskier loan, that 1/3rd rebate would work out to 2%.. taking the effective interest well negative.

This gets around the problem of truly going to negative interest rates where people would borrow infinity and keep the negative spread for themselves.

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if it weren't for the genuine prospect of utter ruin, hunger and war, this would all be darkly funny.

Hysterical IMO. Nothing like a huge economic meltdown worldwide to tickle the ribs eh? Just think of all the jobs that will be lost--and the comical sight of soup kitchens. It will have them rolling in the aisles. Good thing its contained thoguh as I don't know how we could stand the laughter if it spread here.

War? Germany invaded their neighbours and only declared war after a period of inflation not deflation. Can't see Iran carrying through with its threats to Nuke all around them and North Korea are unlikely to torpedo any more S Korean warships. Russia is hardly likely to try to take over Poland again to solve economic problems at home. And we are even less likely to defend another Falklands scenario. If, in the unlikely event, Germany went to round 3 and tried it again we may not be able to count on the US to bail us out again by lending equipment and we do not have a Churchill to persuade them to come in on our side.

Deflation cometh.

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"The worm is turning," said David Bloom, currency chief at HSBC. "We're in a world of rotating sovereign crises. The market seems to become obsessed with one idea at a time, then violently swings towards another. People thought the euro would break-up. Now we're moving into a new phase because we're hearing alarm bells of a US double dip."
.../
Mr Bloom said a deep change is under way in investor psychology as funds and central banks respond to the blizzard of shocking US data and again focus on the fragility of an economy where public
debt is surging towards 100pc of GDP,
not helped by the malaise enveloping the Obama White House.
"The Europeans have aired their dirty debt in public and taken some measures to address it, whilst the US has not," he said.

EZ, US and we are next when the markets digest the fact that our debt is much higher than 100% of GDP at £4TR.

I daresay the stress test will be the banksters way of "coming clean" on the dirty linen issue?

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from the above:

"A study by the San Francisco Fed said the interest rates need to be –4.5pc to stabilise the economy under the Fed's "rule of thumb".

oh eck

penfold1.jpg

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Scepticus I read a way to do negative interest rates without actually putting rates negative. With rebates on interest paid. So say you could get a variable for 3% at a big bank. The central bank would give you a 'rebate' of say 1/3rd of the interest you paid for the year. Which in that case would work out to 1%. With base rates at 0.5%, this is an 'effective' interest rate of -0.5%.

For someone paying 6% interest, say on a riskier loan, that 1/3rd rebate would work out to 2%.. taking the effective interest well negative.

link?

This gets around the problem of truly going to negative interest rates where people would borrow infinity and keep the negative spread for themselves.

that is not what would happen with negative rates. Rates would only be negative while people ARE NOT borrowing. As soon as borrowing increases - positive rates again. Also negative rates only obtain while the money supply is shrinking.

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Tim Congdon from International Monetary Research said the US authorities have botched policy response. "They are forcing banks to contract lending by raising their capital asset ratios. They have let M3 shrink by 1pc a month, as in the early 1930s. The solution is simple. The Fed must raise the level of deposits by purchasing bonds from the non-banking system as the Bank of England has done. They refuse to do it," he said.

Perhaps if they had prevented M3 getting so large in the first place, by giving the banks virtually free reign to extend credit at will, then we wouldn't be discussing this problem.

Cause => Effect.

Where were the warnings from the IMR about there being too much credit expansion? :rolleyes:

What a farce!

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link?

that is not what would happen with negative rates. Rates would only be negative while people ARE NOT borrowing. As soon as borrowing increases - positive rates again. Also negative rates only obtain while the money supply is shrinking.

If rates go negative, I'll be taking my money out of the bank.

Speculating on a positive return and getting a negative return is one thing, but who signs up for a guaranteed negative return, without being forced to? Before you talk about nominals, if I have cash in my hand, that would do even better than any promise of no 'real' inflation adjusted loss.

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Perhaps if they had prevented M3 getting so large in the first place, by giving the banks virtually free reign to extend credit at will, then we wouldn't be discussing this problem.

Cause => Effect.

Where were the warnings from the IMR about there being too much credit expansion? :rolleyes:

What a farce!

That is the reason, but they had to let M3 get so large in order to prevent deflation in the early 2000's.

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:rolleyes:

The central banks need to stop lying. They target asset prices, not consumer prices. They are liars, paid by thieves.

Is it coincidence that lending standards were totally debauched right at the same time the system was heading into deflation in 2002. And thus set off a credit boom that fended off deflation for almost a decade.

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Is it coincidence that lending standards were totally debauched right at the same time the system was heading into deflation in 2002. And thus set off a credit boom that fended off deflation for almost a decade.

and this allowed the corporate sector to rebuild their balance sheets after the excesses of the late 90s, at the expense of households.

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Is it coincidence that lending standards were totally debauched right at the same time the system was heading into deflation in 2002. And thus set off a credit boom that fended off deflation for almost a decade.

They've been debauching them for decades. Every time the credit taps start to run dry, they find a way to start them again. They have been reducing the reserve requirements for decades and now with no reserves left, they have hit the printing presses.

Elastic money supply*, my **** - it is never allowed to spring back. It's just monetary inflation with a burden of debt repayment, which has got ever larger since the removal of gold backing.

State backed, fractional reserve banking is a nonsense.

* If it was genuinely elastic, there would be no fear over credit deflation, as it would be assumed to happen after credit inflation, by design.

Edited by Traktion

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They've been debauching them for decades. Every time the credit taps start to run dry, they find a way to start them again. They have been reducing the reserve requirements for decades and now with no reserves left, they have hit the printing presses.

Elastic money supply*, my **** - it is never allowed to spring back. It's just monetary inflation with a burden of debt repayment, which has got ever larger since the removal of gold backing.

State backed, fractional reserve banking is a nonsense.

* If it was genuinely elastic, there would be no fear over credit deflation, as it would be assumed to happen after credit inflation, by design.

It's OK. This time - finally - the credit taps will run dry and not gush again for a decade. M3 is about to be vaporised: debt deflation is baked in and about to ramp up in earnest. Printing will only devalue sterling on a relative basis, stoking CPI inflation. The inevitable failure of the "guv'ment" to sustain asset prices a second time will be a watershed psychological moment for the country. We're at the crest of a tidal wave and we're powerless to stop it.

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If rates go negative, I'll be taking my money out of the bank.

Speculating on a positive return and getting a negative return is one thing, but who signs up for a guaranteed negative return, without being forced to? Before you talk about nominals, if I have cash in my hand, that would do even better than any promise of no 'real' inflation adjusted loss.

Rates can and do go negative.

The lower bound is probably the storage, security and insurance cost of cash rather than a negative nominal rate on a bank deposit or t-bill. My guess is that it is somewhere around -2.5% pa.

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It's OK. This time - finally - the credit taps will run dry and not gush again for a decade. M3 is about to be vaporised: debt deflation is baked in and about to ramp up in earnest. Printing will only devalue sterling on a relative basis, stoking CPI inflation. The inevitable failure of the "guv'ment" to sustain asset prices a second time will be a watershed psychological moment for the country. We're at the crest of a tidal wave and we're powerless to stop it.

It's not OK though, is it? The central banks and governments have caused a right bloody mess and we're going to have to live with the results over the next decade or more.

Maybe the game is up with credit inflation, but the credit deflation pain is just starting*... :(

* Assuming they don't unwittingly trigger hyperinflation, that is.

Edited by Traktion

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  • 145 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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