[GoghGoner]

Thursday's Fed meeting seems to have too much attention and I expect it will be anti-climatic, however, longer term implications of continuing increases to interest rates are worthy of notice. Can the patient be resuscitated or is he flat-lined permanently?

And in the near decade since then, pretty much every rule, technique, and guideline the Fed once relied on has been drastically rewritten, revamped, or removed. That blank slate underscores the fact that seven years after the financial crisis, the US economy continues to feel the reverberations.

In the words of one analyst, when the Fed tries to raise interest rates “their actions will entail the largest monetary policy experiment in human history.”

[Pops]

I moved this to the PO forum because I think this will have a huge impact on the type (and amount) of development that happens in the future.

I've thought that one of the reasons the frackers had such a large stream of cash coming in to fund their activity is that interest rates were very low so capital was willing to take on additional risk just to get any kind of return. Retirement funds and other big money that typically was more conservative got into the game and the money just rolled in.

So when the rates increase to the point those big institutional investors go elsewhere (not to mentioned getting burned from the implosion of marginal companies) there will be a exodus of the ready cash the frackers need to stay on the treadmill.

[Tanada]

Interesting graph, it could be argued that the Fed from 04-06 felt that rates had been too low for too long and tried growing them too fast as a result. Then as the housing bubble reached maximum size they caught their collective breath and when it popped they panic dropped too far too fast. The Fed has several mechanisms to choose from and the interest rate is the one most attention is paid to by the media. I think we would have all been enormously better off today if they had just held rates stable in January 2008 and used all the other options in their arsenal instead first, leaving interest rate manipulation as the measure of last resort.

But I am no banker and never will be, so nobody cares how I see it lol, I have to remind myself not to take myself too seriously from time to time.

[hvacman]

LOL - For the lack of one letter, a sentence's entire meaning is changed....

Thursday's Fed meeting seems to have too much attention and I expect it will be anti-climatic,

Perhaps you meant "anti-climactic"? Or is the Fed now diving into the entire climate-change controversy?

[GoghGoner]

No End, yet. Stocks collapsing (temporary, I am sure).

EDIT: DOW only dropped by ~100 points and that response was an anti-climax.

Funny there were protesters. Um, if ZIRP isn't working for you, maybe you shouldn't ask for more of it.

Strange as it sounds, the social justice movement is united with Wall Street in opposition to a Federal Reserve rate hike. Protesters clad in green t-shirts rallied outside Fed offices. They hoisted signs that linked monetary policy with the racial disparities behind the "Black Lives Matter" movement.

"Black America is still in a Great Recession," read one sign.

"Don't raise the interest rate," the group collectively chanted, arguing that the Fed will eventually encourage faster wage growth by holding rates at the near-zero level they have been at since late 2008. The group is questioning the presence of inflation in the economy — since rising prices have historically triggered rate hikes.

[kublikhan]

Or not:

Federal Reserve officials left interest rates unchanged, opting to delay an increase amid stubbornly low inflation, an uncertain outlook for global growth and recent financial-market turmoil.

Fed Leaves Interest Rates Unchanged at Zero-0.25% Target Range

[Cog]

LOL ZIRP forever. I'm good with that.

[Plantagenet]

LOL ZIRP forever. I'm good with that.

Sure. It'll be great until the next financial crisis-----

and then when the US economy hits a bad patch and the FED needs to cut interest rates to goose the economy they'll have to say "OOPSIES...the FED can't do anything to help....we're already at ZIRP"

[Peak_Yeast]

That graph sure makes one wonder just how far below the 0 the line actually should be to make them as happy as they were when it was graph was growing.

[GoghGoner]

If ZIRP is to blame for global deflation, I can't imagine what -ZIRP will do. I guess it may be continuum and not an abrupt change but paying somebody to take money still seems just a little ludicrous.

The Fed's next move? Negative interest rates

Ben Bernanke told Bloomberg Radio that, despite having the "courage to act" by printing trillions of dollars, he thought other unconventional issues (such as negative interest rates) would have adverse effects on money-market funds. However, anemic growth in the U.S., Europe and China over the past few years has now changed his mind on the subject.

Supporting this notion, New York Fed President William Dudley recently told CNBC, "Some of the experiences [in Europe] suggest maybe can we use negative interest rates and the costs aren't as great as you anticipate."

Indeed, over in Euroland, European Central Bank President Mario Draghi hinted recently that the current 1.1 trillion euro ($1.2 trillion) level of QE would soon be increased, its duration would be extended and deposit rates may be headed further into negative territory.

Statements such as these have me convinced that negative interest rates in the U.S. are likely to be the next desperate move by our Federal Reserve to create growth off the back of inflation. After all, the Fed is overwhelmingly concerned with the increase in the value of the dollar. Keeping pace with other central banks in the currency debasement derby is of paramount importance.

[Tanada]

On the other hand they could just credit every deposit account in the USA with $10,000.00 and have consumers go hog wild buying stuff and stimulating the economy as opposed to giving it to mega banks that invest it in fracking and other risky ventures.

[ralfy]

That increases public debt, and the amount in turn may have to be used to cover personal debt.

[Subjectivist]

That increases public debt, and the amount in turn may have to be used to cover personal debt.

Nah, it's all just electronic data entry, no physical cash needs to go on the books : P

[ralfy]

That increases public debt, and the amount in turn may have to be used to cover personal debt.

Nah, it's all just electronic data entry, no physical cash needs to go on the books : P

Much of money supply is electronic data, and given combinations of a resource and energy crunch, what applies to electronic data ultimately applies to pieces of paper.

[AgentR11]

If ZIRP is to blame for global deflation, I can't imagine what -ZIRP will do. I guess it may be continuum and not an abrupt change but paying somebody to take money still seems just a little ludicrous.

ZIRP is not the cause of deflation. ZIRP is the reason why we aren't at 5%+ deflation RIGHT NOW. And yes, they very much can and will do negative interest rates, even substantial negative interest rates to keep that deflation monster at bay.

They are using it to mask a severe, essentially permanent depression. And its working. We aren't starving. Grain is making it to the grocery store shelves; and the lights and internet are still clicking along.

Fortunately, the people that make the policy, have access to real time numbers, and the computational capacity to use those numbers. They will not be moved by the latest conspiracy theory of the day. They will not succumb to people who think money serves a purpose other than to move grain from field to pantry.

ZIRP will continue till the end of time if necessary, but there WILL NOT BE significant deflation. Bankers aren't perfect, so yeah, they missed by a small nibble here and there and let some tiny negative inflation numbers show; but they'll stomp them hard, and they have no limits to how hard they can stomp.

That said, we're on a doomer forum here; we don't have to pretend that these numbers reflect true growth; we can be content that powerdown is engaged, that the wealthy will end up owning almost everything as a result, but that the grain will continue to move, and you and I will still be able to buy a twinkie at the grocery store; whether that twinkie is labeled as $1 $10 or $100 is completely unimportant. As long as it is an increasing price.

In our world. There can be no true growth anymore.

[Tanada]

If ZIRP is to blame for global deflation, I can't imagine what -ZIRP will do. I guess it may be continuum and not an abrupt change but paying somebody to take money still seems just a little ludicrous.

ZIRP is not the cause of deflation. ZIRP is the reason why we aren't at 5%+ deflation RIGHT NOW. And yes, they very much can and will do negative interest rates, even substantial negative interest rates to keep that deflation monster at bay.

They are using it to mask a severe, essentially permanent depression. And its working. We aren't starving. Grain is making it to the grocery store shelves; and the lights and internet are still clicking along.

Fortunately, the people that make the policy, have access to real time numbers, and the computational capacity to use those numbers. They will not be moved by the latest conspiracy theory of the day. They will not succumb to people who think money serves a purpose other than to move grain from field to pantry.

ZIRP will continue till the end of time if necessary, but there WILL NOT BE significant deflation. Bankers aren't perfect, so yeah, they missed by a small nibble here and there and let some tiny negative inflation numbers show; but they'll stomp them hard, and they have no limits to how hard they can stomp.

That said, we're on a doomer forum here; we don't have to pretend that these numbers reflect true growth; we can be content that powerdown is engaged, that the wealthy will end up owning almost everything as a result, but that the grain will continue to move, and you and I will still be able to buy a twinkie at the grocery store; whether that twinkie is labeled as $1 $10 or $100 is completely unimportant. As long as it is an increasing price.

In our world. There can be no true growth anymore.

It won't continue until the end of time, only until the end of BAU, because all it can do is delay the inevitable bubble pop temporarily. Sure it has managed to last eight years so far, but do you honestly foresee it lasting for eight more? How about 80 more so the children born today can keep BAU going their entire lives?

[AgentR11]

Ok.. how bout "until the end of people tracking precise time"! lol. But yeah, I don't mean past the end of industrial civilization.

As to how long? As long as the first world is food calorie positive, they can keep doing ZIRP and QE.

[GoghGoner]

It is a double-edged sword. Interest rate cuts provided liquidity and boosted inflation rates away from a strong deflationary cycle. That same liquidity was funneled into resource exploration and caused an oversupply of commodities which now has brought about deflation. The easy credit environment continues to distort production since companies are able to borrow their way through low prices without cuts in production that would have happened with bankruptcies. They can only borrow so much, though. American coal companies have already started facing the music and coal production continues to trend downward as bankruptcies of major players happen.

[Tanada]

It is a double-edged sword. Interest rate cuts provided liquidity and boosted inflation rates away from a strong deflationary cycle. That same liquidity was funneled into resource exploration and caused an oversupply of commodities which now has brought about deflation. The easy credit environment continues to distort production since companies are able to borrow their way through low prices without cuts in production that would have happened with bankruptcies. They can only borrow so much, though. American coal companies have already started facing the music and coal production continues to trend downward as bankruptcies of major players happen.

Money is a construct, a simple human invention that is just a symbolic representation of labor. When we divorce money from a physical limit, like gold or some other physical commodity we make it possible to represent more labor than can actually be utilized. That is what fiat currency is all about, but in the end those currencies that are fiat have always collapsed sooner or later back to a physical representation. Modern 21st Century bankers have now taken even fiat currency creation to a new level by digitizing currency into existence without even the token fiat paper as a symbolic measure of how far the fiat depreciation is from the physical reality.

By extending fiat to these new levels what the banks have done is to simply delay the collapse by a few months or years where the fiat currency returns to a physical placeholder. The bubble is now growing at an exponential rate completely divorced from physical constraints, and every bubble that grows too fast or too large meets the same fate, it pops.

Negative interest rates are just another way of saying you will be punished for saving or even leaving money in your demand deposits for too long. It is a way to force people to put their cash into action, which if you pause and think about it for a minute is exactly the same thing that happens with hyper-inflation. Like hyper-inflation negative interest rates have one logical consequence, the currency collapses and the Joe6P stops using it because they lose faith in its symbolic, human created 'value'.

Unfortunately the people who operate the banking and financial system have painted themselves into a corner with the bubble blowing that has taken place since 1993 when President Clinton, with the best of intentions IMO, turned the operation of the financial system over to the 'experts'.

Pride goes before the fall, and the people running the system let their own pride convince them that it was possible to both game the system and keep it functioning. You can do one or the other, but you can not do both.