Negative interest rates are a tax! Not a traditional tax paid to the government, but an expense paid, on savings. Years of policy designed to encourage spending and discourage savings is likely reaching the end game; the point where those exhibiting prudence must be punished to keep the game going. At some point, and likely soon, central bankers will be forced to realize the efficacy of lowering interest rates is vanishing and is hindering achievement of their goals. When this occurs a paradigm shift in the way monetary policy is conducted will likely occur. Investors that understand this dynamic, and what it portends, will be in a much better position to protect and profit from the asset price adjustments that lie ahead.
Gold prices are up between 13% and 23% year-to-date in the major currencies. However, this upward trend started long before the recent price rally.
There once was a time when economists would have been in an uproar upon witnessing the shenanigans of today’s central bankers. Nowadays they are not only acquiescing to them, they are actively demanding more and more intervention. Instead of being the voice of reason warning of the dangers such policies harbor, they have become cheerleaders for them. It is only a very small consolation that they will eventually be discredited. The cost will be extremely high.
The technical situation for the gold price has sharply improved, to the evident surprise of many mainstream analysts, but what are the reasons behind the turnaround, and implications for the future?
We are experiencing 1970’s style stagflation, coming from the supply side, not demand. Prices are going up because Norges Bank continues to destroy the Norwegian Krone, turning it into the Nordic Peso. This is where they are “hiding” the damage to save rest of the economy. For example, housing prices will rise in NOK but fall in USD or gold (universal commodity) terms. It’s a shell game, leading to long term decline or even worse, an unexpected period of elevated inflation, requiring a rapid rise in interest rates.
The logic of lowering rates below zero is so boneheaded that only a PhD could believe it. It’s all relative, you see. It’s like standing on a train platform. The train next to you backs up…and you feel you’re moving ahead. Negative interest rates are like backing up. They give borrowers the illusion of forward motion... even if the economy is standing still.
Authored by Steve H. Hanke of the Johns Hopkins University. Follow him on Twitter @Steve_Hanke.
Those expecting a major weakening in the USD to push oil higher shouldn't hold their breath awaiting this outcome. Maybe the USD will weaken 20%, but why would it do so when every other central bank is weakening its currency? Wouldn't it make much more sense to drain wealth and geopolitical leverage from oil exporters?
Former Federal Reserve Chairman Alan Greenspan resurfaced this week. We couldn’t recall the last time we’d heard from him. But, alas, the old fellow’s in desolate despair. Any remorse he now has is too little too late. Like a pickled cucumber, his actions, and the actions of his predecessors, can never be undone. Today we’re all living with the exacting consequences of Alan Greenspan’s pickled economy.
Following the unprecedented Romney roundhouse kick to Trump's character, The Donald is about to rebuff "the loser." As John McCain backs Romney's rant, it appears yesterday's Koch Borthers, Icahn, Murdoch mega-donor call for a truce has been broken as Trump prepares to return fire against "failed candidate Romney" and his establishment cronies.
While revised modestly higher from preliminary levels, US non-farm productivity plunged 2.2% in Q4 2015 - the biggest drop since Q1 2014. Economists are gnashing their teeth to explain this "plunging productivity paradox" - we think it is rather simple...
Capitalism requires World War because Capitalism requires profit and cannot afford the unemployed. The point is capitalism could afford social democracy after the rate of profit was restored thanks to the depression of the 1930’s and the physical destruction of capital during WW2. The underlying nature of Capitalism is cyclical.
The Federal Reserve is a key component of the American Transfer State. Under the guise of “macroeconomic management,” it redistributes vast amounts of wealth on an ongoing basis through inflation. The victims of these transfers are ordinary Americans. The beneficiaries are the government and its elite cronies. It’s all a con, and a cheap one at that. Unfortunately, sometimes the most successful con artists are the ones who keep it simple.