Question: Why can't the fed go to a negative interest rate?

[blazespinnaker]

Re: Question: Why can't the fed go to a negative interest rate?

I meant something like this:

http://pages.stern.nyu.edu/~igiddy/c...kshirecase.htm

Basically, you have to pay a fee to lend the money / you get paid to borrow.

Eg: Go into a bank, get a mortgage, and the bank pays you X amount the longer you hold the mortgage.

The fed could do the same. Just buy up bonds in the general market so rapidly that the interest rate goes below zero.

In fact, they are probably already doing it, just not officially.

[blazespinnaker]

Re: Question: Why can't the fed go to a negative interest rate?

Can someone please explain to me, why it is a constant theme on itulip, that the savings of the prudent ought be confiscated??????? It keeps coming up time and time again!
Why is confiscation of savings seen as a solution? Please tell me how the confiscation of savings helps!!!! ...because i'm bloody lost.
And don't give me crap about.."well we don't really mean that" because that is exactly what you mean. It has been going on for 40 odd years and now you want to accelerate the pace by not only confiscating the principal but charging people to have savings.
It hasn't occurred to you that might just be the problem?

You're using hyperbole. Everyone is in this together. Savers are rewarded, they can enter into the markets now that things are very low. People who are too cautious should not be rewarded ... some risk taking should be necessary.

[blazespinnaker]

Re: Question: Why can't the fed go to a negative interest rate?

Anyways, my point wasn't really to get into a debate about different solutions. I was merely curious as to why we can't go to a neg rate. Why we are supposedly 'zero bound'.

I don't believe we are, and ZIRP is just an arbitrary stopping point.

[mikedev10]

Re: Question: Why can't the fed go to a negative interest rate?

give me 50k at 0% and i'm gonna need a bigger safe

[sunskyfan]

Re: Question: Why can't the fed go to a negative interest rate?

To answer your question directly ... my understanding has always been that the fed rate is coupled to banks in that say if the fed rate is 3% then the bank has to have 3% cash on-hand for the loan they generate of of the Fed Reserve. If this is true then zero boundary is indeed a hard one. I am sure there are "tricks" to get by this but we enter the land of Oz at that point.

One last point ... Free Markets are amoral. It is up to people realize morality. Sometimes we do this collectively with government and sometimes in other instances with churches and such. Most of the time it is in our every day lives. People can choose to ignore there own morality using governments and churches as a crutch but that is always true whether we are in crisis or not. Be careful about acusing anyone of wanting to shoot the weak or ethunize the elderly. This discusion is about the optimization to minimize damage of the crisis and implementing a vital useful economy for human ends.

Oh ... one more thing ... if you don't want your saving to be used by anyone then stick it in a mattress .

[The Outback Oracle]

Re: Question: Why can't the fed go to a negative interest rate?

Blaze...you're about the best example i have ever seen as to why Governments and everyone else should stop interfering with markets.
In saying that keep in mind I am a believer in the Socdial Contrtact.

Now about hyperbole! "We're all in this together" you're sounding like George Bush.

You're going to confiscate savers capital!!! It's been decimated for 40 or 50 years and now you're not only going to confiscate their capital but charge them to do it. That is a simple fact!!!! Are you proposing they pay tax on the negative earnings as well?
Many have saved, in the face of negative real interest rates, so that one day, in the face of world foolishness, they might buy a few shares cheaply. That has a function in the world. Your intention is to ensure that can't happen.

Now, if you're charging me, what, 30 to 40% real interest to save...guess how much savings i am going to deliver to you. Conversely if you are paying me to take it out, guess how much i'm going to go and borrow every day. Where exactly is the money coming from...oh yes...that's right ...we just print. The only problem I can see, really, is that the fuel needed to get the truck to the bank would be worth more than the truckload of paper i could carry home.
The big problem that we have is that there are no savers!!! We are not short of borrowers!!!!!! There are plenty of people wanting to borrow money!! You totally miss what is actually happening

[c1ue]

Re: Question: Why can't the fed go to a negative interest rate?

Blaze,

One reason for not having actual negative rates is that you're effectively transferring money out of banks.

When interest rates on deposits are negative, then who would even bother with banks at all? Note that deposit interest rates are generally at or below the official rate.

Thus a -2% Fed rate would mean a -1.x% deposit interest rate - that means losing money each day!

[Milton Kuo]

Re: Question: Why can't the fed go to a negative interest rate?

You're using hyperbole. Everyone is in this together. Savers are rewarded, they can enter into the markets now that things are very low. People who are too cautious should not be rewarded ... some risk taking should be necessary.

This is a terrible idea--you're forcing people to speculate through a confiscatory policy. Not everyone is a good speculator; in fact, I would say most people are lousy speculators.

As for entering markets because "things are very low," is the government going to give the saver a put to ensure that the saver, who is being forced to speculate, does not lose money? Things may be low right now but is anyone certain that this is the bottom and the reluctant speculator won't end up losing principal?

[tombat1913]

Re: Question: Why can't the fed go to a negative interest rate?

The Federal Reserve, you know, the institution that regulates banks.

The absence of regulation is what cause much of this mess to begin with. People, when left to their own devices, will act like irrational herds. Government is there to modulate and tame the booms and busts of the economic cycle.

Ahhhhhhh!:mad: You say their job is to regulate, then you say absence of regulation is what caused the mess.

Translation: they weren't doing their damn job in the first place.

When has government ever modulated or tamed booms and busts? Have you read anything Janzen has written about government policy causing the irrational behavior and this shit storm? They are INCOMPETENT, single digit approval ratings for the congress and white house should make that abundantly clear.

Jim Rogers should be made to clean up the mess? How the hell is Jim Rogers responsible for this?

It's absolutely not necessary to have a private bank in control of the financial system and it's constitutionally unsound. The congress keeps passing off their responsibilities to declare war and print sound money etc., that's what has us screwed.

[blazespinnaker]

Re: Question: Why can't the fed go to a negative interest rate?

Blaze,

One reason for not having actual negative rates is that you're effectively transferring money out of banks.

When interest rates on deposits are negative, then who would even bother with banks at all? Note that deposit interest rates are generally at or below the official rate.

Thus a -2% Fed rate would mean a -1.x% deposit interest rate - that means losing money each day!

Actually, a -2% fed rate would mean -2.x% deposit interest rate, no?

[blazespinnaker]

Re: Question: Why can't the fed go to a negative interest rate?

Everyone should be required to speculate at least a ceratin amount. Everyone should be required to put their capital at some risk.

In order to move forward, we need to take some risks. People who take some versus those who are pure savers should be rewarded more.

[blazespinnaker]

Re: Question: Why can't the fed go to a negative interest rate?

..

TOO, never fear, I have zero influence. Nothing I say is likely to come to pass because I said it.

You are all perfectly safe to discuss the theoretical aspects with me without fear that someone might actually take us seriously.

[blazespinnaker]

Re: Question: Why can't the fed go to a negative interest rate?

Jim Rogers talks about things as if they are of little concern. As if letting the next Great Depression happen because, well, things should go to their real value.

There are ways to cure the patient without killing him, which is what some of his suggestions would result in.

I think a lot of the things said around here are pretty smart, but sometimes there seems to be a bit of a disregard for some of the people who are getting punished severely because they don't have the same level of talent to fully understand the markets as you guys do.

They might be super responsible, honest, hard working folks, who get screwed because they were in the wrong place at the wrong time.

For example, think of the renters that are getting kicked out of their houses because their landlords are getting foreclosed upon. Seriously, now... How is that fair?

The iTulip community has a lot to be proud of. However, I think sometimes the way it talks about these things shows a huge lack of empathy for the massive pain and suffering that this is all causing.

Full disclosure: I've been personally waiting for something like this for a very long time and have been in mostly cash up till this point. This is not personally causing me pain, but in fact, is personally helping me out a lot. I just don't want to get rich while other people suffer. I'm very much into win-win.

[jimmygu3]

Re: Question: Why can't the fed go to a negative interest rate?

Actually, a -2% fed rate would mean -2.x% deposit interest rate, no?

Yeah, I think Blaze is right, but c1ue brings up good points. Problem I see with neg rates is that those with access to credit would be encouraged to hold the money rather than invest it in production. If I could borrow $1M, keep it in a safe for a year, pay back $980k and pocket the other $20k, I would do it.

[Milton Kuo]

Re: Question: Why can't the fed go to a negative interest rate?

Everyone should be required to speculate at least a ceratin amount. Everyone should be required to put their capital at some risk.

In order to move forward, we need to take some risks. People who take some versus those who are pure savers should be rewarded more.

I agree that those who assume risk prudently should be rewarded more handsomely than those who take no risk. However, those who take no risk should not be penalized, which a negative interest rate seems to imply.