Citi On Why Negative Rates Are Like Potato Chips: "No One Can Have Just One"

Tyler Durden's picture

Now that Japan has let the negative rates genie out of the bottle, or as DB put it, 'opened the Pandora's Box' and in the process unleashed the latest global "silent bank run" and capital flight, prepare to hear a whole lot more about NIRP in the coming weeks because as Citi's Steven Englander put it, "Why are Negative Rates like Potato Chips? No one can have just one."

This is what else Englander said:

You can admire the policy boldness of the BoJ move into negative rates, and recognise its powerful asset market effects – positive for equities and negative for JPY. Experience in other countries that have entered into this territory should sober you up on the likely economic and inflation impact. No country that has gone into negative rates has experienced major shifts in its growth and inflation profile – minor, yes; major, no. As a consequence every dip into negative rates has been followed by additional moves.


Negative rates are a powerful inducement for cash to leave the banking system, but there is little evidence that investors take the cash and build steel plants with it. They buy foreign and financial assets, which is probably more than enough for the BoJ.

Some further thoughts from Citi's FX desk, and why the BOJ ultimately shot itself, and other central banks, in the foot:

As the dust settles on the BoJ reaction, USDJPY is somewhat higher and risk currencies have begun to rebound following an initial dip. However, the price action has not been one-sided. Partly this seems to reflect the tendency of many investors to dismiss the rate move as diluted given its tiered implementation. Of the investors I have spoken to since the decision, a significant majority were inclined to poke holes in the decision. The response also carries some echoes of the response to the Fed, where dovishness did little to support investor sentiment and markets sold off. If anything, the pattern seems to be that bad news is bad news, good news is bad news and no news is good news. To me, this latter concern presents a more sustained threat to risk sentiment and it has been harder to dismiss the deeper vein of market concern on underlying slowing, policy effectiveness and the ability of policymakers to respond to future shocks.

Finally, who could have possibly foreseen the entire world collapsing into NIRP singularity? Well, this blog for one (more on that later). Others included Albert Edwards and Bob Janjuah who sat down in September  and predicted that sooner or later the Fed itself would cut rates to -5%. Some laughed at the duo 4 months ago; hardly as much laughter this time around.

For those who missed it the first time, here it is again:

When Two Uber-Bears Sit Down: Albert Edwards And Bob Janjuah Expect The Fed To Cut To -5%

When two legendary "bears" (actually what they really are is realists who refuse to drink the Fed's, the establishment's, and the media's Kool-Aid) such as Albert Edwards and Bob Janjuah sit down, while the outcome is hardly as dramatic as the Stay Puft marshmallow man emerging, one certainly expects very provocative and contrarian observations to emerge. This is precisely what happened one week ahead of the Fed’s last meeting. 

Here is the story as told by Edwards himself in his latest note to SocGen clients:

I enjoyed afternoon tea with my fellow strategist Bob Janjuah of Nomura (aka Bob the Bear). When we occasionally meet up, we lie back and look up for a bit of clear blue sky thinking – okay, I know it’s London and the sky is usually overcast, but that sort of fits in with our bear view of the world! Among other things we wondered why no-one else entertains the possibility that rates might bottom at minus 5% Fed Funds in the coming downturn.


The next US recession will probably arrive a lot sooner than most investors expect and will likely see more desperate monetary experimentation from the Fed. Bob and I thought that this time we would see deeply negative interest rates in the US (and Europe). Sweden has led the way, dipping their toe below the water line with their current -0.35% policy rates but there will be more, much more along these lines. For if -0.35% is possible, why not - 3.5% or less? It goes without saying that deeply negative interest rates would be accompanied by a massively expanded QE4 in the US. The last seven years of exploding central bank balance sheets will seem like Bundesbank monetary austerity compared to what is to come.


And so it came to pass last week – just one negative dot in the Fed policymakers’ projections for interest rates set the markets abuzz that central banks were no longer to be constrained by the zero interest rate bound. The very next day the Bank of England’s chief economist and policy wonk, Andrew Haldane, also raised the possibility of not just negative interest rates, but banning cash if people hoard it in an attempt to attain a heady 0% return – link. Wow, even Bob and I hadn’t thought of that!

Yes, it is odd that when push comes to shove, not even the biggest skeptics could conceive of the world that is about to be unleashed by tenured economists who have never held a real job in their lives, and yet - somehow - are micromanaging the entire world.

So: NIRP, QE4... or money paradrops as Citigroup shocked everyone with its modest proposal yesterday?

Actually, why not all three - after all, what does the Fed have left to lose? It appears gold is finally getting the memo that the final debasement of the reserve currency is about to be unleashed.

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Takeaction2's picture
Takeaction2 (not verified) Jan 31, 2016 12:04 PM

Looks to be a popcorn heavy week....Hope those Diebold voting machines are primed..and programmed..

New video on Trumps FB...


KesselRunin12Parsecs's picture
KesselRunin12Parsecs (not verified) Takeaction2 Jan 31, 2016 12:18 PM

Soros, & Carlyle Group (Bush interest, which owns Booz Allen Hamilton) have big stakes in DIEBOLD... Nuff said

Pinto Currency's picture



The real issue is that with global debt at 320% of global GDP, negative interest rates are needed for the debt ponzi to go further.

Nothing to do with potato chips.

Baldrick's picture

re that fb vid, it was posted 3 hrs ago and at the time of my replying, over 550k views and 9,400 shares. WOW.

Normalcy Bias's picture

Long PM's and Real Estate.

RaceToTheBottom's picture

Income producing realestate.

Unless you are have Buffett level cronyism connections and benefits, general people will not make money through appreciation in realestate at these levels.  Income producing pieces will work.

Once big, big inflation comes then maybe...

Xibalba's picture

RE is a myth.  Just another debt instrument to pay bankers salary's

Government needs you to pay taxes's picture

UNLEVERAGED income producing real estate, with the potential to grow sufficient food to feed your family.

Dr. Spin's picture

Hey NB,

PMs are going to hold just fine, real estate, not so much. 

Can't say when exactly, butt, there's a giant hole in that one.


newworldorder's picture

Something to consider. Thanks for posting. Unemployment rate and unproductive employment or no employment in the US are also issues to consider.

Dr. Spin's picture

Real Estate has been grotesquely distorted by the asset bubble.  I consider it very risky especially as an investment vehicle.  I paid cash for a foreclosure property in a small town and am quite happy with that decision.  I can walk away from this property and never look back...far far cheaper than renting.



JRobby's picture

"The last seven years of exploding central bank balance sheets will seem like Bundesbank monetary austerity compared to what is to come."

Coming soon - QE-IV - including real estate purchases! (through our network of shells, PE cos. & HF's)


EarthShine's picture

Long Real Estate for those lucky few that can afford it here in London. For the rest, there's always the casino.

InsanityIsWinning's picture

NIRP has but one objective . . . stock market must not go down.

JustObserving's picture

Debts in the Western world are just too large to be serviced.  Before they go bankrupt, the Central Banksters will try everything including more QE, NIRP and getting rid of cash.  When all these approaches fail, they will go in for a major war.

The path to perdition is paved with the corruption of Central Banksters

Normalcy Bias's picture

I'm afraid the 'major war' will be waged by govts against their own domestic populations. Pillage, plunder, subjugate...

yrad's picture

It's the Fiat and Intrinsic Value Principle. But, I thought that was some crazy fairy tale. CBs wouldnt hitch their wagon to worthless paper, right?

cheech_wizard's picture

And that will be the time to strike... <cue nefarious laughter and the sounds of gunfire>

giggler321's picture

I'm ok with war since these guys

say WW3 will not be with Russia or China but will be with made up little green men

Jacksons Ghost's picture

We ain't seen nothing yet. Ludicrous Speed!

Dr. Spin's picture



VonSalza's picture

Negative Rates are God's plan to kill this great evil called money.

Dr. Engali's picture

Regardless of the fed trying to pretend that the world is getting back to normal, reality says otherwise. There is far too much debt out there to support any meaningful rise in rates which is why treasury yields will continue to decline. NIRP and helicopter money followed by an implosion of the currency are the inevitable outcomes.

Cynthia's picture

Just a sad game at this point. Japan tries to destroy their currency to gain a trade advantage. The ECB will counter next to try and destroy their currency faster, China will retaliate with a lower currency. Meanwhile, Yellen will be a deer in the currency war headlights and eventually get dragged back into the game.

lordbyroniv's picture



"while the outcome is hardly as dramatic as the Stay Puft marshmallow man emerging, one certainly expects very provocative and contrarian observations to emerge."

Lost in translation's picture

I wish I knew - really wish - where to park what little money I have.

All in PMs? I'm pretty much there but having all eggs in one basket doesn't seem very wise...


= (

RaceToTheBottom's picture

I am certainly glad that Yellen was able to increase interest rates proving that Keynesian cycle has been completed.

It would have been embarrassing to have to start another round of QE without having the cycle been deemed as complete....

Since everything has been solved and recovery achieved, we are free to start QE again without anyone saying "the emperor has no clothes".


Tinky's picture

Just store them in various places – problem solved!

GrokMarkets's picture

I'm sure many will mock me, but having some bitcoin isn't a bad idea. Even a very small amount could pay out very well over the long term, and easier to hold than PMs.

TheSecondLaw's picture

I'm at 80% PMs and 20% bitcoin/ethereum/factom

Government needs you to pay taxes's picture

I'd recommend a 10-20% allocation to broads, 10% guns/ammo, 20% booze, 25% land with a roof, and the rest in beads for the natives (PM for any visiting ZHers). 

Weirdly's picture

$1000 on a way to ferment and distill. 

Cynthia's picture

This is all being done to keep the power among the corporate elite. This has nothing to do with stimulating the economy or benefiting the shrinking middle class. If ZIRP did not do it, surely anything negative will have the same or worse impact to the many. When you continue to defy the laws of economics, the end game becomes more devastating. 

I shutter to think the insight Hollywood had when they made many futuristic movies years ago that portrayed a global, corporate-controlled world. Reality really is stranger than anything you could possibly make up, so it pays to stock up on plenty of highly potent, fantasy-resistant red pills!

Edward Morbius's picture

Talk about powerful, the BOJ has managed to make the time value of money not just zero, but negative. The implications are staggering.

Sudden Debt's picture

It's not about inflation or growth.

It's that they can loan more money with negative rates and print money like they want to without calling it printing money.

It's just to keep the fools in the dark that their central banks are destroying their economies at their exspence to make their friends who are already filthy rich even more filthy rich.

bugs_'s picture

The Frito Bandito for Fed Chair!

pachanguero's picture

Long AU stocks, AEM,  income producing real estate, but who the fuck knows....

Edward Morbius's picture

Get long guns and ammo, food and water, everything else will be of no value until rule of law is restored, which will probably not be in our lifetimes, if ever.

buzzsaw99's picture

and so, your zirp has failed

you've made the progress of a snail

don't worry... [/tiger lillies]

kotfare17's picture

Negative rates = Extinguishing of Money


Negative rates = QE unwinding, but the WRONG way to unwind it.

buzzsaw99's picture

The small and mighty all the same
Yield curves are a shallow facile game
Every saver will be crushed
And every bank account turned to dust
The crack of doom is coming soon…

[/Tiger Lillies]

gm_general's picture

If humans stuck on a mountain can not only resort to cannabilism, but eventually it seems quite normal, I would bet most would just accept this nonsense, Look at charts of US discount/treasury/mortgage/whatever rates since 1980 and total US debt chart since 1980, you will see as debt went up, rates come down. If they did not, debt service costs would kill the debt batteries hooked into the Matrix. The goal seems to be to hold total interest charges at around 15-20% of GDP. With the discount rate at 0 or so, the average interest charges paid on the $62.6T outstanding debt is just over 3%. This is still about 15% of GDP at this low rate. Debt is going up at a parabolic rate. The only way to go on this trajectory is negative at the low end. It's just stop-gap though - do you expect anytime in your lifetime that the banks will pay you to take out a home loan? Pay a corporation to borrow money? And private debt is still the vast majority of debt.

zeroaccountability's picture
zeroaccountability (not verified) Jan 31, 2016 12:53 PM

In the land of Negative- Interest Rates,  0% is King!

Edward Morbius's picture

We have been in NIRP in REAL terms for several years now.

the grateful unemployed's picture

yeah imagine an FOMC announcement a year from now, the Fed raises interest rates 1/2 basis point to negative 1%. will the markets throw have a fit about that?

Joebloinvestor's picture

It would have happened only once if the victims would have disembowled a few bankers and politicians.

That is why it gets repeated.


RaceToTheBottom's picture

In 1980s we put 1000s of banksters in Jail.

In the 2008 Financial crisis we have

  • Not put any banksters in jail, except a few who turned themselves in. 
  • Came up with new regulations that do nothing while not reinstating the original Glass-Steagall whose removal helped cause the crisis.
  • We have increased the number of TBTF banks.
  • We have enabled the banks to steal more from the middle class.
  • We have allowed the banksters to buy more politicians than ever before.

The trend is not really that good.

Strelnikov's picture

Still cna't het my head around this NIRP shit.  Who the fuck would buy a bond that slowly deletes your principal?