Negative Rates In The U.S. Are Next: Here's Why In One Chart

Tyler Durden's picture

When stripping away all the philosophy, the pompous rhetoric, and the jawboning, all central banks do, or are supposed to do, is to influence capital allocations and spending behavior by adjusting the liquidity preference of the population by adjusting interest rates and thus the demand for money.

To be sure, over the past 7 years central banks around the globe have gone absolutely overboard when it comes to their primary directive and have engaged every possible legal (and in the case of Europe, illegal) policy at their disposal to force consumers away from a "saving" mindset, and into purchasing risk(free) assets or otherwise burning through savings in hopes of stimulating inflation.

Today's action by the Bank of Japan, which is meant to force banks, and consumers, to spend their cash which will now carry a penalty of -0.1% if "inert" was proof of just that.

Ironically, and perversely from a classical economic standpoint, as we showed before in the case of Europe's NIRP bastions, Denmark, Sweden, and Switzerland, the more negative rates are, the higher the amount of household savings!


This is what Bank of America said back in October: "Yet, household savings rates have also risen. For Switzerland and Sweden this appears to have happened at the tail end of 2013 (before the oil price decline). As the BIS have highlighted, ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain."

Bingo: that is precisely the fatal flaw in all central planning models, one which not a single tenured economist appears capable of grasping yet which even a child could easily understand.

This is how Bank of America politely concluded that NIRP is a failure:

For now, negative rates as a policy tool remain a “work in progress”, judging by the current inflation levels across Europe. But the rise in household savings rates amid so much central bank support is paradoxical to us, and mimics what we highlighted in the credit market earlier this year. Companies in Europe are deleveraging, not releveraging, and are buying back bonds not stock.

One can now add Japan to the equation.

And soon the US, because as the chart below shows, the Fed has likewise dramatically failed in shifting the liquidity preference of US investors. First, here is what Bank of America finds when looking at recent fund flows:

4 straight weeks of robust inflows to govt/tsy bond funds; 19 straight weeks of muni bond inflows; since 2H’15, cash has been the most popular asset class by far ($208bn inflows – Chart 1) vs a lackluster $7bn inflows for equities & $46bn outflows from fixed income (dogged by redemptions from credit)

And here is the one chart which in our opinion virtually assures that the Fed will follow in the footsteps of Sweden, Denmark, Europe, Switzerland and now Japan.

Since the middle of 2015, US investors have bought a big fat net zero of either bonds or equities (in fact, they have been net sellers of risk) and have parked all incremental cash in money-market funds instead, precisely the inert non-investment that is almost as hated by central banks as gold.

To Yellen, this behavior will have to stop, and she will make sure it does sooner rather than later. Just ask Kocherlakota.

Will this crush money markets as we know them, and unleash even more volatility and havoc around the world?

Absolutely. But at this point, when evey other central bank has lost credibility, to paraphrase Hillary Clinton loosely, "what differnce will it make" if the Fed joins the party on the central bank Titanic?

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SillyWabbits's picture

The problem is the velocity of money -- not the amount!

Looney's picture

Negative Rates In The U.S. Are Next

… and everybody’s salary at the Fed should also be NEGATIVE!  ;-)


bonderøven-farm ass's picture

"It's not the stock, it's the flow"

Said, a wise ZH'er many moons ago...wish I could give credit where it's due.

Mister Ponzi's picture

You will finally end up with negative rates in the U.S. but other countries than the U.S. will be next with Canada being the most obvious candidate.


B of A - just fucking great - the same rocket scientists that bought Countrywide, gave Mozillo his golden parachute, and butt fucked the American tax payer for their fair share of TARP money, too.

Die in a fire, bankster thieving bastards.

JRobby's picture

Which version of "We have lost control of this thing and we are not at all sure what will happen next" do you want to hear????

This fucked shit show is terminating and there are a thousand plus "versions of that denial" in double speak on a daily basis.

Dsyno's picture

Negative Fed salaries won't help. They'll happily pay for that position.

Huckleberry Pie's picture

....print their salaries.

True Blue's picture

What a joke! Negative interest rates are here and have been for awhile.

They are stealing a 'targeted' 2% interest from your money via inflation. Reality is much higher than the 2% they claim.

Point being, if you are not getting an interest rate that is at least fractionally higher than 'inflation' (the theft of value by dilution) then you are already earning a negative rate. All official NIRP will do is expand the graft to help line yet another set of pockets with your dwindling cash.

Soul Glow's picture

QE4EVA + NIRP = Total destruction of finance

savedeposit's picture

No it is not

It's just back to basics

Back to REAL value

Instead of fantasy

I know it negotiable, but in the end it is the only way

MSimon's picture

All values are fantasy until tou need a 2X4 in the middle of the ocean to stay afloat.

Soul Glow's picture

So when people say gold has no return, and I can say cash has a negative return, then I will laugh hysterically!



savedeposit's picture

Don't forget Silver => Copper => Lead

flaunt's picture

That's pretty much the point I've heard many gold analysts make in the past, that gold performs best in an environment of negative real interest rates... So the question is will the rate of the deflationary death spiral outpace the negative-ity of the interest rate? 

docinthehouse's picture

Take up snowboarding in the woods!

debtor of last resort's picture

Paging Dr Engali. Please pick up the black courtesy phone.

Dr. Engali's picture

Hello, Engali here. Somebody call a Dr.?

debtor of last resort's picture

Your comment on nirp in Japan.

"No. We will see helicopter money only when the US goes nirp"

Well, here you are. So pick up the goddamn phone.

Dr. Engali's picture

Actually my comment was:

"No, the time to panic is when the U.S finally engages in NIRP. After that there's nothing left but helicopter money. "

But, close enough.

debtor of last resort's picture

You were close enough too doc. Thanks for your education and comments.

Dr. Engali's picture

Glad to see BofA is catching up with the time. It took them a couple years but they finally got here. Now how long will it take them to start talking about helicopter drops?

flaunt's picture

So "gold is universally loathed," and they're eventually going to charge you money to have cash in the bank, so what are people going to do?  Start pulling physical cash out of banks?  Long cotton, linen?  Too bad Crane Paper Company isn't publically traded.

Dr. Engali's picture

Why do you think there's a war on cash waging right now?

savedeposit's picture

Back to gold/silver physical then, and if thats forbidden it is going to be moon shine of whisky, and if that is going to be forbidden it is going to be weed or pertol or sheep and cattle again.

Anything of value instead of inflating paper or digital fiat

layman_please's picture

but he did say sheep? oh, sorry, my bad. i thought it was about EU. but not to worry, your migration policies are quite favorable.

Countrybunkererd's picture

You win.  My thinking exactly.  How many eggs will you take rather than a check/cash for x dollars?  Worse still, people people are tapped out with the stupidity within the ACA.  You could have purchased a porsche 911, but we want you to buy healthcare at that same cost, or more.

Countrybunkererd's picture

"Want you to" in the eyes of .gov is "forced to" in the eyes of we the people.

bonderøven-farm ass's picture

Many had 'Caddilacs' they're paying for Yugos.

FreeShitter's picture

How long till the sheep catch on? I mean most of these motherfuckers have attention spans of a goldfish. MSM would come out for example and say "we have to go nirp because the terrorists are winning" walaa and most would accept.

Countrybunkererd's picture

I wanted to give a good reply, but i was sidetracked by the time i got to the end of your posting.  What?

Janet Shalom Bernanke's picture

One thing is for certain,  it will be hunting season on the central bankers when this fiasco ends.

First it will be by the very governments these central bankers think support them.

Central bankers will fear for their freedom, and likely will fear for their lives by the public, whose lives and futures they have destroyed.  

Their actions will touch off tremendous economic and social upheaval.

Let's hope that the world learns lessons from this, and never again, gives the reins of finance to such a gang of people ever again.  

and let's hope that their destruction of the financial system is deep, quick. and widespread, so the end game can play out sooner rather than later.



herkomilchen's picture

Nice fantasy.  You do realize government and bankers are different appendages of the same monster, right?

GlobalCtzn's picture

I think you will be right in one respect, the world will vilify the 'central bankers' and their monetary paradigm. we may even get to see few hang as part of the show. Then the 'new' system will incorporate a strong propaganda message within it that says the 'new' monetary system is the answer and the tough medicine needed to rid the world of the evil banksters and their corrupt system........................... and the citizens will rejoice in their shiny new egalitarian monetary system, and the fucking criminals will reboot and point the world down the road to their digital, cashless utopia.....................

Sword61's picture

and let's hope that their destruction of the financial system is deep, quick. and widespread, so the end game can play out sooner rather than later.


You will get 2 of you 3 wishes and not the outcome.


It will be Deep and widespread but not quick and the end game will play out over a long time with lasting repercussions

falak pema's picture

The ONLy FIAT Worth anything is Government FIAT; bottom line.

We have to clean out the Oligarchy Casino. Its gonna be a shitstorm the likes of which we have never seen.

Malheur Lodge ! Level Infintiy!

So when the herd of Casino players run off the edge what's left ?

Guess : The State !

Love it or hate it ; it stays the foundation of the West since 1648 and Treaty of Westphalia !

Until we find a way for nation states to talk "reason" and global balance we fall back to Westphalia.

Bottom line. Man is an ape.

As for Cb and those who supported the casino : they will be "sacrificed" if shit hits the fans.

EndlessSummer's picture
EndlessSummer (not verified) Jan 29, 2016 3:23 PM

I wonder if they ae lumping regular savings, money market funds and money market accounts - together.

I am not a big-time bond trader - I buy and hold to maturity - but I was very disappointed recently when I tried to buy a long-term corporate bond and my (large) brokerage would no longer accept a bid. It was their price or no price.

flaunt's picture

Negative rates would trickle down to everything... So it could go one of several ways... People pull money out of brokerage accounts and savings accounts and try to convert to physical cash, or they buy lots of bonds so they don't have to hold cash, but then they aren't making any return on the bonds except for capital appreciation but nobody would want to sell and realize those gains back to worth-less-than-zero cash... Or people just buy stocks and everything in sight so they don't have to hold cash that is wasting away... What a disgusting choice.  Good thing we have a "government," because anarchy would be so much worse.



EndlessSummer's picture
EndlessSummer (not verified) flaunt Jan 29, 2016 4:05 PM

We have moved about a third of our lifetime savings outside the US. We have taken a BEATING on the dollar's ascent - except for my most recent exchange. We earn some interest on our foreign funds but it doesn't come close to what we have lost on exchange. But - the money is here. Of course I have to do a couple days worth of paperwork every year to tell the US Treasury how much we have and where etc.

herkomilchen's picture

Until people realize that, they will remain slaves.

explainstuff's picture

Yeah - But, doesn't that basically means more people invest their money in stocks instead of keep it in banks as cash?


This then is only assurance that this crazy bull market keeps going higher?


What am I missing?

flaunt's picture

I wanted to say nobody could know in advance what would happen, but I think we should look overseas and see what happened there, which is the point of this post.  

FreedomGuy's picture

It could also boost gold. Cash can be seized if it is in large quantities and if you try to get through TSA they may well confiiscate it and call you an obvious drug dealer. So, you buy assets and then gold blossoms as the alternate to paper money...maybe bitcoin, too.