50, 75, 100, or 125?

[blazespinnaker]

Re: 50, 75, 100, or 125?

Real interest rates are already negative (below zero) The nominal interest rate cannot go below zero, unless the Fed and Treasury decide that people purchasing Treasuries should be paying interest to the US Government for the privilege of holding them (Good luck with that).

As the fed has clearly shown, the fed funds rate isn't the only arrow in their quiver.

[GRG55]

Re: 50, 75, 100, or 125?

Real interest rates are already negative (below zero) The nominal interest rate cannot go below zero, unless the Fed and Treasury decide that people purchasing Treasuries should be paying interest to the US Government for the privilege of holding them (Good luck with that).

As the fed has clearly shown, the fed funds rate isn't the only arrow in their quiver.

No argument on that. The idea of negative nominal interest rates isn't entirely fantasy. The Swiss did that some years ago to discourage "safe haven" purchased of the Franc. If you had a Swiss Franc bank account you actually had to pay the bank interest to hold Francs in cash.

So if the Fed wants to make sure people do not save, and keep on spending, spending, spending, then the idea that they might require holders of safe haven Treasuries to pay interest isn't that far fetched I suppose. Sapiens alluded to the Fed forcing it to zero a few days ago on another thread, and I was dismissive that anyone would want to hold US $ that badly. But clearly somebody wants to hold them today.

[jimmygu3]

Re: 50, 75, 100, or 125?

Real interest rates are already negative (below zero) The nominal interest rate cannot go below zero, unless the Fed and Treasury decide that people purchasing Treasuries should be paying interest to the US Government for the privilege of holding them (Good luck with that).

Sapiens says he knows the answer to why one would want to hold zero interest treasuries, but he's not sharing it with the group. Some are here to share, some to teach, some to learn, some to play games and claim superiority...:rolleyes:

[GRG55]

Re: 50, 75, 100, or 125?

Sapiens says he knows the answer to why one would want to hold zero interest treasuries, but he's not sharing it with the group. Some are here to share, some to teach, some to learn, some to play games and claim superiority...:rolleyes:

See my post just above for the answer. Basically the Fed will only do this to discourage savings in the safe haven of Treasuries. An increased US household savings rate will spin the economy down faster than if the Fed can keep that from happening. Look for more tax policy to discourage savings as well. Finster's worst nightmare... :rolleyes:

[jimmygu3]

Re: 50, 75, 100, or 125?

No argument on that. The idea of negative nominal interest rates isn't entirely fantasy. The Swiss did that some years ago to discourage "safe haven" purchased of the Franc. If you had a Swiss Franc bank account you actually had to pay the bank interest to hold Francs in cash.

So if the Fed wants to make sure people do not save, and keep on spending, spending, spending, then the idea that they might require holders of safe haven Treasuries to pay interest isn't that far fetched I suppose. Sapiens alluded to the Fed forcing it to zero a few days ago on another thread, and I was dismissive that anyone would want to hold US $ that badly. But clearly somebody wants to hold them today.

The Swiss aren't reliant on foreign investment to support deficit spending. Switzerland and Japan are net creditors and their past experience cannot be applied to the largest net debtor nation in world history.

[jk]

Re: 50, 75, 100, or 125?

the reason to buy treasuries with no return would be that it's safer than having cash under your mattress.

[blazespinnaker]

Re: 50, 75, 100, or 125?

Basically, the way things happen now is that the treasury will auction off these things and the fed (alongside other CBs and primary dealers) buys them up.

Basically, the fed will just start buying them up faster than they are now. They will bid negative interest rates in order to get them. If other people want them, they will need to compete with the fed.

It is possible for those who are seeking safe haven to want these treasuries. Or for the simple matter of pegging their currency, like China.

Also, Warren Buffet was offering negative interest rate bonds when things got very low.

It's all relative, you know.

Anyways, again, as we've seen the Fed can do more than just buying/selling treasuries. They can also alter who they actually deal with and lend money to. They can participate in other markets.

0% is a meaningless and merely psychological level.

Of course, this will be pretty bad for the dollar against gold / other currencies / etc. I guess really bad as the world realises that the fed can keep going and isn't going to stop at 0%.

[raja]

Re: 50, 75, 100, or 125?

the reason to buy treasuries with no return would be that it's safer than having cash under your mattress.

And safer than in a bank . . . the government will never go bankrupt since it can print all the money it wants.