www.NegativeInterestRates.com

In Sidney Homer’s classic “The History of Interest Rates” he said, “It seems fair to say that free market long-term rates of interest for any industrial nation, properly charged, provide a sort of fever chart of the economic and political health of that nation.”

The infographic from VisualCapitalist.com suggests either the world is in a lot better shape than people think or we should re-examine the natural rate of interest rather than the highly manipulated rate structures imposed on the market by central bank interventions. These well-intentioned interventions might solve short term liquidity crises that result from boom and bust cycles, but invariably ends in epic bubbles bursting requiring massive liqudisity injection by the central banks (most importantly the Fed).

History might well look back at efforts to control the global economy with such interventions in the same way the medical profession views bloodletting as an effective protocol. However well-intended these interventions might seem in the short run supplying desperately needed liquidity into the bank system during a financial crisis, the long-term effects and the incredible distortions might prove to be the undoing of the global financial system in the long run even keeping in mind John Maynard Keynes’s comment about how we are all dead in the long run. But surely there must be a better way to stabilize the global financial system. Does anybody have any new good ideas?

Negative Interest rates in the Era of COVID-19

https://asia.nikkei.com/Economy/New-Zealand-weighs-negative-interest-rates-as-COVID-rages-overseas

https://www.ekathimerini.com/258916/article/ekathimerini/business/greek-bonds-in-negative-yield-territory

Outside of fish and chips, beef Wellington and bangers and mash are not well-known for their culinary prowess, but now the financial chefs at the Bank of England might be conjuring up a new monetary recipe: negative interest rates.

Long eschewing any discussion and denying they are under consideration, BoE Governor Andrew Bailey did an about-face and announced to the House of Commons Treasury select committee on Wednesday that they were indeed under active review: ” “We have been looking very carefully at the experience of those other central banks that have used negative rates.”

How Negative Interest Rates Affect the Risk-taking of Individual Investors: Experimental Evidence

https://www.scribd.com/document/459277113/Negative-Interest-Rates-Study-Ssrn

The collective market reaction to negative oil prices can probably best be described as mind-boggling: “how on earth is this possible?” As the OPEC+ cartel becomes increasingly incontinent, it’s as if all the toilets in the world are full and there is no place left to pee.

Brussels: The Manneken Pis

With stunning psychological impact, world oil prices have broken the zero lower bound and have gone negative. Even relatively sophisticated investors have asked, “how is that possible?” Too much supply, not enough storage tank capacity, and fully tanked-up, topped-off super-tankers stranded out at sea with nowhere to go. Its like musical chairs but with no chairs.

The psychological barrier having been broken in a Kafka-esque COVID manner, do negative oil prices forbode a change, likely involuntary, of putting negative interest rates on the table for U.S. monetary policy, one that has long been eschewed like the plague. Without the participation of the U.S. in the global market’s $15 trillion of government bonds bearing negative interest rates, NIRP is a bit of an orphaned monetary tool for the rest of the world’s central banks who have to contend with the “exorbitant privilege” bestowed upon the U.S. dollar as the global reserve currency.

But in the extreme uncertainty of re-opening the world economy, one can expect some pretty strange anomalies to emerge. Having crashed into a brick wall and totaling the car, it might be more challenging to get back to the business of business for the global financial system than people might realize. As such, everything should be on the table including negative interest rate policy since no one knows how a recovery will unfold. Keep your options open at all times. Never say never. And follow Warren Buffett’s views on negative interest rates which he calls “the most important question in the world.”

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Here we go! Stay tuned…

https://www.reuters.com/article/usa-bonds-negativeyields/update-1-once-unthinkable-investors-contemplate-negative-us-treasury-yields-idUSL4N2B21F8