E Negative Interest Rates And Why Banks Want Fannie And Freddie

Here are some cutting edge discussions about negative interest rates (NIRP) that are worth your attention. Some of the discussions speak to profound insights gained, and others speak to tweaks needed to fully embrace the negative rate regimes. Others discuss the success or failure of such regimes. Why banks may want to replace Fannie and Freddie so badly is discussed.

Bookmark this page as a reference to these ongoing discussions.

The assumption of those seeking negative rates is that they will serve as a stimulant to economic growth and a stimulant to mild inflation that would stimulate growth. So far there is little evidence that these measures are working, but the experimentation is far from over. Here then are some of the cutting edge discussions, including some chilling realizations:

Tyler Durden shows how demand for bonds is picking up even as the ECB and BOJ go negative. The question then becomes how low the central banks will go in pursuit of stimulus using NIRP. Declining bond yields, of course, means demand for bonds is picking up.

The Econometer Panel has said don’t worry about negative interest rates coming to the USA (except for Kelly Cunningham who says otherwise), but hedge those comments with an implied application of them in any serious downturn. The Fed is watching how negative interest rates work in Japan and in the ECB before taking any action.

Jeff Cox at CNBC says that the Fed could reverse payment on interest on reserves (IOER) and force the banks to pay the Fed or lend the money out into the economy. Reversing payment on reserves is a market monetarist position, however, that economic school usually does not seek negative rates.

Stephen Williamson has written extensively about negative interest rates with many fascinating articles from his blog. In particular, he has posted an interesting article showing that in figure 3, the Riksbank was talking up negative rates as a solution to the lack of inflation in the Swedish economy. It turns out that figure 3 was from 2 years ago, and Williams points out the talk failed and that the Swedes are still talking up inflation with no victories at all for the negative rate regime. Similar failures exist in the ECB and in Japan.