Former Fed President Demands Negative Rates To Combat "Terrible" Fiscal Policy

Tyler Durden's picture

Narayana Kocherlakota is a funny guy.

Before abdicating his post at the Minneapolis Fed to former Goldmanite/TARP architect Neel Kashkari, Kocherlakota was the voice of Keynesian “reason” for the FOMC.

Although his pronouncements never measured up to the power of the Bullard, Kocherlakota did call on a number of occasions for MOAR dovishness, noting that if the US economy were to decelerate (which it has), more asset purchases may be warranted.

He's also suggested on a number of occasions that if the government wants to help the Fed out, it will issue more monetizable debt, thus giving Janet Yellen more paper to buy in a world where central bankers are increasingly bumping up against the limits of Keynesian insanity. 

In October, following the Fed's "clean relent", Kocherlakota suggested that the time has come for NIRP in the US. As a reminder, here are the bullets: 


On Tuesday, Kocherlakota is back at it, calling for the FOMC to be "daring" and take the NIRP plunge. "Going negative is daring, but appropriate monetary policy,” he wrote Tuesday on his website. However, it's necessary because fiscal policy makers have made “a terrible policy failure."

Right. It's all the fault of an inept Congress, the universal central banker scapegoat for all that ails the global economy. If only they'd issue more debt (because $19 trillion clearly isn't enough), the FOMC would be free to buy still more bonds, but because lawmakers are recalcitrant, the Fed apparently needs to go negative in order to put the faltering US economy back on the right track and point inflation back to a "healthy" 2%. 

It's too bad Narayana's opinion no loger officially matters, because as we've seen in Europe and Japan, NIRP is exceptionally effective at banishing the deflationary impulse, boosting wage growth, and restoring growth. 

*  *  *

Full post from Kocherlakota's website

Negative Rates: A Gigantic Fiscal Policy Failure

Since October 2015, I’ve argued that the Federal Open Market Committee (FOMC) should reduce the target range for the fed funds rate below zero.   Such a move would be appropriate for three reasons:

  1. It would facilitate a more rapid return of inflation to target.
  2. It would help reduce labor market slack more rapidly.
  3. It would slow and hopefully reverse the ongoing and dangerous slide in inflation expectations. 

So, going negative is daring but appropriate monetary policy. But it is a sign of a terrible policy failure by fiscal policymakers.

The reason that the FOMC has to go negative is because the natural real rate of interest r* (defined to be the real interest rate consistent with the FOMC’s mandated inflation and employment goals) is so low.   The low natural real interest rate is a signal that households and businesses around the world desperately want to buy and hold debt issued by the US government.   (Yes, there is already a lot of that debt out there - but its high price is a clear signal that still more should be issued.)  The US government should be issuing that debt that the public wants so desperately and using the proceeds to undertake investments of social value.

But maybe there are no such investments?  That’s a tough argument to sustain quantitatively.  The current market real interest rate - which I would argue is actually above the natural real rate r* - is about 1% out to thirty years.  This low natural real rate represents an incredible opportunity for the US. We can afford to do more to ensure that all of our cities have safe water for our children to drink. We can afford to do more to ensure that our nuclear power plants won’t spring leaks.  We can afford to do more to ensure that our bridges won’t collapse under commuters.

These opportunities barely scratch the surface.  With a 30-year r* below 1%, our government can afford to make progress on a myriad of social problems.  It is choosing not to. 

If the government issued more debt and undertook these opportunities, it would push up r*.  That would make life easier for monetary policymakers, because they could achieve their mandated objectives with higher nominal interest rates. But, more importantly, the change in fiscal policy would make life a lot better for all of us. 

I don't think that Chair Yellen will say the above in her Humphrey-Hawkins testimony tomorrow - but I also think that it would be great if she did.  

N. Kocherlakota

Rochester, NY, February 9, 2016

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Soul Glow's picture

Gotta ban cash first though.  Cash ban, then NIRP, that way everyone is trapped giving "their" interest to the banks.

Interest - interesting word, isn't it?

FreeShitter's picture

False flag first then we can ban cash and go full retard with nirp to wipe out the remaining useless eaters.

Soul Glow's picture

Maybe.  I hate considering false flags.  I hate thinking about how the "Shadow" government not only runs the economy into the ground to seperate the rich from the poor but how in acts of capitulation they blow up large buildings and kill hunreds and thousands of people.  But you're right, they always have their finger on the button.

Manthong's picture

Of course this sorry economy has nothing to do with MONETARY policy.


CheapBastard's picture

Got Gold?


Negative rates will create moar panic, fear and push gold up to $3,000 or moar.

InjectTheVenom's picture

>>>>  negative rates OR

>>>>  end the fed 

Temporalist's picture

Posting this higher so it doesn't get burried:


Fed May Lack Legal Authority for Negative Rates: 2010 Memo

The Federal Reserve may not have the legal authority to set negative interest rates in the U.S., according to a 2010 staff memo that was posted late last month on the central bank’s website.

NoDebt's picture

If we could just borrow and spend enough we could pull forward ALL FUTURE DEMAND forever into a single quarter.  One giant, monster quarter and then zero forever after that.

It's for fucking over the children, after all.


glenlloyd's picture

When are people going to stop paying attention to these morons? He's not even a fed president anymore...

Beam Me Up Scotty's picture

Why not just issue million year bonds and push the debt so far out into the future that no one will even be around to care about it???  Hell, at the rate we are going, the 10 year bond might fit that bill......

SWRichmond's picture

Governments are so trustworthy that I will pay them to hold my money....riiiiiiiiiiggggghhhht.

Nutsack's picture
Nutsack (not verified) SWRichmond Feb 9, 2016 4:31 PM

It's time to euthanize all of these fuckers

I am more equal than others's picture



The citizens should consider the use of gallows. Not sure there is enough rope for all hangings that are needed for this culling.

If hanging is too fast and comforting, crucifiction is a serious option for NIRP proponents.

Theosebes Goodfellow's picture

What is truly amazing in all of this is that there are banksters that don't see the problem with proposing that people should have to PAY to simply keep their money in a for-profit bank. The very obscenity of it escapes them. If that is not a sign of true mental illness, I do not know what is.

Buckaroo Banzai's picture

"The low natural real interest rate is a signal that households and businesses around the world desperately want to buy and hold debt issued by the US government."

Funny sounding logic, to someone who has a brain and can use it. To better understand, let's change a few words around and see how this sounds.

"The high number of young male muslim invaders in Germany and Sweden is a signal that women in Germany and Sweden desperately want to get raped by young muslim men."


Antifaschistische's picture

Negative Rates means it's a better deal to pull out the cash and put it in your own vault than to get your deposits scalped by the banks.  But there's a problem.  The banks don't have the cash...So knowing rational people and businesses will come to this conclusion, they have to front run the run on cash by banning cash.  that way, your money gets hotel california'ed before it gets Cypressed.

Bernoulli's picture

Do you think he also - same as Bernanke - has "the courage to act"?

steelhead23's picture

I think we are making too much of Mr. K's proffered monetary policy solution.  He is a Keynesian - and he is strongly recommending a Keynesian approach - that the federal government should be spending money on any and all economic infrastructure improvements until inflation and the economy grow,  I see his NIRP suggestion as a stop-gap monetary policy suggestion in the face of a feckless government's fiscal policies.  It is highly unlikely the Fed would act on his suggestion.

r0mulus's picture

I'm not sure he is as "Keynesian" as you believe- at least not in any altruistic sense.
I saw him speak at an academic conference a few years ago.
Part of his presentation was about measuring the success of fed policies.

He very plainly, and unapologetically said that they measure success based on equity price outcomes.

One of the audience members, a professor from the hosting institution, asked if he thought it was a fair measurement considering that the majority of equities (and their gains) are held by the top 10%, and especially top 1%, of wage earners in the country.

Kocherlakota replied that it was simply the measure the fed had decided was most appropriate after internal debate. Additionally, he said that to question that decision amounted to something of a political question, which he used a way to curtail further discussion on that point.

In light of all that, to hear his comments about the "opportunity" to fix the us infrastructure is especially rich. He's probably just suggesting it as a way to get the public to agree to more defecit spending in general, using either the vehicle, or disguise, of public works projects. The public's complete rejection of Hillary Clinton and Jeb Bush make it clear that the public will not tolerate any more explicit bail-outs of wall street, thus necessitating the camouflage.

Equity Price Levitation and Public Works Financing- just different tools the opportunistic Kocherlakota and the fed will use in an effort to help "manage" the economy.

Antifaschistische's picture



It should be branded appropriately...i like Deposit Scalping (WE DEMAND DEPOSIT SCALPING!!)

Al Tinfoil's picture

Negative consumer finance rates sounds like a great idea.  Then the bank will pay me interest on the balance I owe on my mortgage, and will pay me interest on my credit card debt.  WooHoo!!!!!!!!!!!!!!   If I can just raise my debt levels high enough, and negative interest rates increase enough, I can live handsomely on the monthly Negative Interest Rate payments while my debts pay themselves off.  

Bankers and Academic Economists are Awesome!

JustAboutThatActionBoss's picture

Bring back the "Invisible Hand"!

nope-1004's picture

Moneychangers are caught in a boot loop.  When it doesn't work to flood the market with QE, you can always lower rates to negative, which is the same fucking thing in actuality.

Making money worthless by lowering rates to negative is the same as making money worthless by flooding the banks with liquidity.

These idiots are caught on a one-policy path.  But, shows how smart they are for trying the same thing over and over expecting different results.


LawsofPhysics's picture

Bullshit. Do some REAL QE then. Issue EVERY fucking taxpayer a check for $100,000. If they have DEBT or back taxes, that must be PAID FIRST. After, that, let people spend it how they want.

Anything less is simply continuing the "let the majority eat cake" monetary experiment/FRAUD.

We all know how that ends.

nope-1004's picture

Already happened through the housing bubble.  Phantom wealth gains from bubble economics and asset inflation is the same as handing people cash.


LawsofPhysics's picture


BULLSHIT!!! How many sheep OWN real estate again?

Thanks for the laugh!!

Beam Me Up Scotty's picture

Answer: NONE.  Even if you "own" it because you don't have a loan on it, you still have to rent it from the government.  Don't pay your property taxes??  Goodbye real estate!!  Most people who "own" property, are not only renting from .gov, they are paying rent to the banker too.

Antifaschistische's picture

sheep do not own real estate....we have the illusion of ownership but we pay rent to .gov, who truly owns all the property.  

The entity that can kick you out of your house for not paying rent(tax) the entity that TRULY owns the property.

Commodore Decker's picture

The same can be said about FRNs. If .gov can print the value away, then you don't have any real savings at all.

nope-1004's picture

Exactly.  Apparently bitching non-stop about not having a mitful of cash leads to some kind of stupid.


lasvegaspersona's picture

So I would have to pay doown my mortgage principle before I buy the new Caddy?

Would I have to pay off my HELOC before going to Rio?

I have to repay my brother-in-law the 20 I owe him before I get a hair cut?

Let me know the other details of your plan so I can consider how to vote on it.

LawsofPhysics's picture

That which cannot be sustained won't be. Not very good at understanding "sarcasm" are you? Not surprising.

Bring on ZIRP, I want to be PAID to take on a 100 billion dollar loan, sure, why not.

orez65's picture

"When your only tool is a hammer, every problem looks like a nail"


Think of the Federal Reserve as the Mafia and everything makes sense. 

"I'll make them a deal that they can't refuse"

Janet Yellen, alias the Godmother.

LawsofPhysics's picture

"Got ANY PHYSICAL ASSET OR PRODUCTIVE CAPACITY and the means to physical defend it?" - fixed.

The real economy requires real resources and consumable calories to make and do real shit. The basis for all this is in fact REAL CAPITAL, REAL RESOURCES, and REAL SAVINGS.

This fucker want to DESTROY all these things with ZIRP/NIRP...

Fine, I want to take his fucking head. So will all those who have savings or assets PRICED IN DOLLARS.

Fucking bring it you stupuid fucks!!!

lasvegaspersona's picture

It seems you believe 'they' are trying to hurt us. I believe 'they' have inheritied a funky, cobbled together monetary system that is now failing. They are trying to fix what can't be fixed (and I will grant you 'they' are making a fair bit of dough with their trying).

Our current system has no way to repair it. It has to break and a new system is needed.

I look for the simplest answer. The idea that the bankers have an evil plan is appealing but I think the real situation is that they can't really do much about a world failing due to a screwed up monetary system. Eventually a way to correct things will emerge...but first...BUNGA BUNGA!!

LawsofPhysics's picture

Show me where I say "bankers have an evil plan".

I DON"T you dumb fuck.

Let me be clear for the other stupid fucks;

That which cannot be sustained, won't be, period.

HopefulCynical's picture

I do.

Not the ordinary, run-of-the-mill bank employees, of course. They're just cogs in the machine.

But the private bankster families, who own controlling interest in every privately owned central bank in the world?

You bet yer bippy.


orez65's picture

"The idea that the bankers have an evil plan is appealing ..."

I would call it "appalling" and it is true.

Think about a business in which you can turn a $10,000.00 deposit into a $323,000.00 loan, with the current Federal Reserve 3% "reserve" requirement.

It is called "fractional reserve banking" and it is practiced in the entire world banking system. 

One of the main reasons that we have economic "boom and bust cycles".

iggenFlot's picture
iggenFlot (not verified) CheapBastard Feb 9, 2016 12:27 PM

Hard to imagine negative rates being anything but positive for gold.

Nutsack's picture
Nutsack (not verified) iggenFlot Feb 9, 2016 4:44 PM

Negative Rates===> Bank Runs====>Make Cash Illegal====>Run on PMS====>Make PMs Illegal

wisefool's picture

Just summarizing the points better people have made than me for the uninitiated:

Bad Fiscal Policy is when the government mis-allocates spending and tax incentives, creates an uneven regulatory playing field and under funds core infrastructure and legit R&D. (not Timmy's retarded brothers from other mother's ALGORE and Elon musk bullshit "R&D") This is known as crony capitalism/communism depending on your perspective.

Despite this clusterf^ck Corporations have to maximize profits for "shareholders" so they enact the even more passive aggressive than the professional passive aggressive paycheck players (bureaucrats) "Tax-inversion" stand off. (breaking the Meyer Briggs personality framework into a thousand pieces)   where they refuse to bring profits back from overseas, but also refuse to spend it into the economies where they claim "they already paid taxes" and shockingly the money just so happens to NOT be sitting in ZIRP countries. See apple's Tim "I pay the taxes I am required to" Cook, and Warren "I do what I want! eric cartman" Buffet Medal of Freedom winner.

What is a Central Government to do?

- Use "national security" false flags and domestic hoaxes as an impetuts for more taxes and to soften people up about loosing their rights. As a bonus, get the hoopleheads to donate to 501c3s for the kids and servants fo the aristocracy.

-Run a palms up heglian dialectic (two-party) election cycle. Use party commitess to fix results to keep the sheep mad at their neighbor who did not vote they way they themselves did.

-Get pension. Start think tank, 501c3 or consultancy.

-Get on TeeVee like Madeline Albright and tell people she is reserving spots in hell for those who don't vote according to the plan.

What is a Central Bank to do?

- Implement ZIRP to punish the people that have too much money and yet somehow don't have enough money/greed to have offshore accounts and a former IRS worker on the payroll.

Textbook NWO implementation of globalism. Giving up our God given free will, personal responsibility and empathy/pacifism might actually be okay if we get our flying cars, moon bases and a cure for cancer anytime in the next 200 years, but something tells me it aint going to work out that way.

El Dorado's picture

I met Kocherlakota back in 2013 when I was living in the Midwest (9th Federal Reserve district).  This guy graduated college before most of us graduated High School and has since either worked in academia or for the government, so one can imagine why he is so useless to the real economy.  He's never held a real job and our tax dollars have funded his entire life since about the age of 15.  Anyways I asked him if the fereral reserve ever considers pursueing a different course of monetary policy other than QE and lower interest rates.  His response was, "Well what else can we do? There are no other options." It was shortly after that encounter I read End the Fed by Ron Paul and began a new Journey of educating myself about our countries current problems.  This also included finding ZH!

Urban Roman's picture

Well, at least it will make the old fiscal policy seem sane.

BullyBearish's picture

Hey Crotchrottenkota...E$AD

BandGap's picture

Wait, wait wait!!!!!

How the fuck can you literally force people into electronic accounts and then charge them for this????? This does not sound plausible UNLESS you want to start up the torch and pitchfork brigades.

These "experts" are so free with their fucking "advice", all in the name of the good for the "little" people. So fucking tired of this bullshit.

Soul Glow's picture

Let's not consider if their plan is plausible, or rational, let's just think of how they plan on selling it.

Here is their logic, faulty as it may be - cash is bad, cash is for criminals, banks are safe, you want your money safe, hold it at a bank, banks are doing you a favor by holding your money ie keeping it safe, and the banks are making sure criminals don't have cash = pay the banks to hold the cash!

jcaz's picture

...The same way they shuttled people into the train cars heading to Auschwitz.......

CheapBastard's picture

Americans are Broke Donkeys yet these criminals think they can force blood out of a turnip; broke jobless people do not spend moar despite negative rates.


Destruction of America's middle class and increased poverty = Legacy

tmosley's picture

Cash ban leads to PM and crypto remonetization and monetization, respectively. Services like localbitcoins and Amagi metals will allow you to trade your PMs for crypto and vice versa, allowing you to continue to transact both locally and at a great distance, even allowing you to keep the convenience of the modern system in many cases, allowing scheduling of payments and such.

Will be wonderous to see NIRP implemented and nobody cares because they just switch to the new system and find that it works better.