The "Big Economic Lie" and why rates matter...

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The "Big Economic Lie" and why rates matter...

Postby Indaswamp » Wed Oct 02, 2013 6:41 pm

this is it in a nutshell, but see the link for the entire article...
Why is this important?

It is important precisely because the so-called "multiple" that you pay for financial assets has been entirely created and supported not by stable leverage and economic progress but rather by ever-expanding borrowing capacity and longer periods over which one can factor that borrowing at a given coupon.

And irrespective of the policy rate remaining "lower than expected" it can't go lower than zero, and today it is effectively pinned at zero.

It is therefore now impossible for actors in the economy to borrow more money without raising their coupon costs, and this in turn means that the non-economic acts of the last 30 years can no longer be created and sustained irrespective of what anyone in the markets desires.

http://market-ticker.org/akcs-www?post=224799
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Re: The "Big Economic Lie" and why rates matter...

Postby cartervj » Wed Oct 02, 2013 7:01 pm

Stimulus Plan 13.0 in play yet or would that even work
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Re: The "Big Economic Lie" and why rates matter...

Postby Indaswamp » Wed Oct 02, 2013 7:02 pm

cartervj wrote:Stimulus Plan 13.0 in play yet or would that even work

nope, won't work....
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Re: The "Big Economic Lie" and why rates matter...

Postby cartervj » Wed Oct 02, 2013 8:07 pm

Will it be deflation or this

http://www.theblaze.com/stories/2013/10/02/how-long-do-we-have-before-seeing-hyperinflation-one-experts-answer-may-frighten-you/

FINANCE
HOW LONG DO WE HAVE BEFORE SEEING HYPERINFLATION? ONE EXPERT’S ANSWER MAY FRIGHTEN YOU
Oct. 2, 2013 8:45pm Erica Ritz

Related:Glenn Beck,TheBlaze TV
David Buckner, the founder and CEO of Bottom Line Training and Consulting, an adjunct professor at Columbia University, and the author of “Permission to Think,” explained on the Glenn Beck Program Wednesday why America hasn’t yet seen hyperinflation — but why it could be just around the corner.

Buckner said that in discussing hyperinflation, people often refer to the Weimar Republic, Zimbabwe, and Bolivia, but say “it could never happen here” because a “certain kind of layering has to occur” that America hasn’t seen.



That layering, he said, or the “recipe” for hyperinflation, is:

1) Economic Implosion

2) Collapse in tax revenues

3) Raise taxes

4) Lenders unwilling

5) Austerity or print

Beck seemed shocked by the list, saying all five have occurred.

But Buckner said some still squabble about certain points in the list — and regardless of whether we satisfy the recipe, people still say three things in America are “different,” and set us apart from the standard formula.

First, it is said that “everyone wants to buy our debt,” and no one will ever stop wanting to do so. But Buckner countered that China is already quickly shifting our debt quickly to gold, and analogized the situation to a restaurant where China, the chef, lends the United States money to eat at its establishment. Pretty soon, he said, there will be other customers, like India, who can pay outright.

Second, some also claim that “we’re not printing money” because “we’re exchanging an asset – a bond – for cash.”

“What they’re not saying is where that bond’s coming from – treasuries. As soon as the government puts it out there, the Fed comes and takes it,” Buckner said. “It’s circular, it’s absolutely circular. So we are printing money.”


The third factor that many say differentiates America is that we are a “productive” country, but Buckner said he disagrees there, as well.

What exactly does America produce these days, he asked? We have Apple, but the products are primarily manufactured overseas. We have a good financial sector, but can we depend on that in tough times? Others cite the country’s many innovators as something we “produce,” but Buckner noted that innovators are “produced” elsewhere, also.
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Re: The "Big Economic Lie" and why rates matter...

Postby Indaswamp » Wed Oct 02, 2013 8:12 pm

Depends on how it's defined Carter.
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Re: The "Big Economic Lie" and why rates matter...

Postby cartervj » Wed Oct 02, 2013 8:23 pm

At least the Fed owns most of our debt now :lol3:

that could be bad though :huh:

I've been meaning to ask you if you think it will happen while Obama is in town, it appears they're giving it hell to stave the collapse off
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Re: The "Big Economic Lie" and why rates matter...

Postby Indaswamp » Wed Oct 02, 2013 8:25 pm

cartervj wrote:At least the Fed owns most of our debt now :lol3:

that could be bad though :huh:

I've been meaning to ask you if you think it will happen while Obama is in town, it appears they're giving it hell to stave the collapse off

Hard to tell....predicting the timing is always iffy. That it is unsustainable is not in question though.
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Re: The "Big Economic Lie" and why rates matter...

Postby SpinnerMan » Thu Oct 03, 2013 3:11 pm

And irrespective of the policy rate remaining "lower than expected" it can't go lower than zero, and today it is effectively pinned at zero.

Sure it can.

http://money.cnn.com/1998/11/06/economy/japan_bank/
Western banks are charging Japanese banks for the privilege of holding their yen deposits, in what one economist said was the "unprecedented" use of negative inter-bank interest rates.
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Re: The "Big Economic Lie" and why rates matter...

Postby Indaswamp » Thu Oct 03, 2013 3:20 pm

SpinnerMan wrote:
And irrespective of the policy rate remaining "lower than expected" it can't go lower than zero, and today it is effectively pinned at zero.

Sure it can.

http://money.cnn.com/1998/11/06/economy/japan_bank/
Western banks are charging Japanese banks for the privilege of holding their yen deposits, in what one economist said was the "unprecedented" use of negative inter-bank interest rates.

within the US spinnerman, not globally.... And the rate at the FED can't go below zero, not the intrabank lending rate.
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Re: The "Big Economic Lie" and why rates matter...

Postby SpinnerMan » Thu Oct 03, 2013 4:08 pm

Indaswamp wrote:And the rate at the FED can't go below zero
Why? Is it illegal?
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Re: The "Big Economic Lie" and why rates matter...

Postby Indaswamp » Thu Oct 03, 2013 4:45 pm

SpinnerMan wrote:
Indaswamp wrote:And the rate at the FED can't go below zero
Why? Is it illegal?

no, but to do so would implode credit creation and nuke the global economy.
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Re: The "Big Economic Lie" and why rates matter...

Postby Indaswamp » Thu Oct 03, 2013 5:36 pm

Read this spinnerman from the Cleveland FED:

In contrast, the financial crisis in the fall of 2008 coincided with the beginning of the sharpest and deepest contraction of the recession. In response, the Federal Reserve lowered the federal funds rate target to a range of 0 percent to 0.25 percent. The federal funds rate is a nominal interest rate and cannot go below zero, a constraint known as the zero lower bound (ZLB). Once the rate arrived at the bound, conventional monetary policy could do no more.

http://www.clevelandfed.org/research/commentary/2012/2012-15.cfm
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Re: The "Big Economic Lie" and why rates matter...

Postby SpinnerMan » Fri Oct 04, 2013 7:15 am

It seems that it can in fact go below zero. They have a policy of not going below zero. The simply choose to set that as a limit.

the federal funds rate might have been had the zero lower bound not been binding on policy.


Who ever created the policy can change it. It's my policy not to waterswat unless I change my mind and waterswat.

Policies are just that. Nothing more.
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Re: The "Big Economic Lie" and why rates matter...

Postby ScaupHunter » Fri Oct 04, 2013 8:42 am

Indaswamp wrote:
SpinnerMan wrote:
Indaswamp wrote:And the rate at the FED can't go below zero
Why? Is it illegal?

no, but to do so would implode credit creation and nuke the global economy.



Where is the global below zero rating nuclear winter button. I will push it right now! We need to reset the economy before the end implosion gets worse!
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Re: The "Big Economic Lie" and why rates matter...

Postby Indaswamp » Fri Oct 04, 2013 2:41 pm

SpinnerMan wrote:It seems that it can in fact go below zero. They have a policy of not going below zero. The simply choose to set that as a limit.

the federal funds rate might have been had the zero lower bound not been binding on policy.


Who ever created the policy can change it. It's my policy not to waterswat unless I change my mind and waterswat.

Policies are just that. Nothing more.

Do some research into what happens if/when that happens spinnerman.....
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Re: The "Big Economic Lie" and why rates matter...

Postby SpinnerMan » Fri Oct 04, 2013 5:43 pm

Indaswamp wrote:
SpinnerMan wrote:It seems that it can in fact go below zero. They have a policy of not going below zero. The simply choose to set that as a limit.

the federal funds rate might have been had the zero lower bound not been binding on policy.


Who ever created the policy can change it. It's my policy not to waterswat unless I change my mind and waterswat.

Policies are just that. Nothing more.

Do some research into what happens if/when that happens spinnerman.....

Didn't say it was a good thing. Just saying it is not something that cannot happen.

However nothing more dramatic happens with a quarter point move from 0% to -0.25% relative to 0.25% to 0% or 0.5% to 0.25%.
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Re: The "Big Economic Lie" and why rates matter...

Postby Indaswamp » Fri Oct 04, 2013 6:03 pm

SpinnerMan wrote:
Indaswamp wrote:
SpinnerMan wrote:It seems that it can in fact go below zero. They have a policy of not going below zero. The simply choose to set that as a limit.

the federal funds rate might have been had the zero lower bound not been binding on policy.


Who ever created the policy can change it. It's my policy not to waterswat unless I change my mind and waterswat.

Policies are just that. Nothing more.

Do some research into what happens if/when that happens spinnerman.....

Didn't say it was a good thing. Just saying it is not something that cannot happen.

However nothing more dramatic happens with a quarter point move from 0% to -0.25% relative to 0.25% to 0% or 0.5% to 0.25%.

No, there, you are 100% dead wrong. People do not invest to loose money. The treasury market would crash.
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Re: The "Big Economic Lie" and why rates matter...

Postby Indaswamp » Fri Oct 04, 2013 7:23 pm

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Re: The "Big Economic Lie" and why rates matter...

Postby SpinnerMan » Sat Oct 05, 2013 9:09 am

Indaswamp wrote:
SpinnerMan wrote:
Indaswamp wrote:
SpinnerMan wrote:It seems that it can in fact go below zero. They have a policy of not going below zero. The simply choose to set that as a limit.

the federal funds rate might have been had the zero lower bound not been binding on policy.


Who ever created the policy can change it. It's my policy not to waterswat unless I change my mind and waterswat.

Policies are just that. Nothing more.

Do some research into what happens if/when that happens spinnerman.....

Didn't say it was a good thing. Just saying it is not something that cannot happen.

However nothing more dramatic happens with a quarter point move from 0% to -0.25% relative to 0.25% to 0% or 0.5% to 0.25%.

No, there, you are 100% dead wrong. People do not invest to loose money. The treasury market would crash.

The Japanese did as I showed in the earlier link.

They are not investing. They are storing money and that costs money and doesn't pay money. Every safety deposit box in the world has an effective negative interest rate.

At these low interest rates. It's not about making money. It's about minimizing losses. This is why are economy is still limping along. They are more scared about losing the wealth that they have than they are about trying to create new wealth by risking what they have.

Nobody wants to admit they can't help, especially when they are the societal elites at the Fed, so instead of lowering interest rates further and pushing them into negative territory and admitting the economy is where it is, they hold them very low and then start printing money and using it to finance government spending or buy stuff with it. They will never admit they can't do a damn thing to help. The irony is the more they try to help, the more people do the exact opposite of what they want them to do. They are adding to the fear.

For instance, corporate profits - you do not need to invest new money to make more profits. You can stop new investment and cut costs and what happens to profits? :huh: When the future looks bright, foregoing near-term profits to grow your business makes sense. When the future looks dim, foregoing near-term profits looks foolish.

There are always more than one way to look at most of these numbers. Only one of them is the right way. You have to look at all of them from every angle and then the simplest explanation that fits all the puzzle pieces is probably the right way. Everybody can find a few puzzle pieces that look like they fit the way they wan them to fit.

The worst possible way to present most of this information if you are serious about trying to understand it is on a linear as your links always do. This should be a giant red flag that they are either not very competent or they are salesmen.
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Re: The "Big Economic Lie" and why rates matter...

Postby Indaswamp » Sat Oct 05, 2013 2:29 pm

I should have said "investors" instead of "people". The motives of a central bank are radically different than that of individual investors (or corporations even). Walk through what you think will happen IF the FED rate is negative....think it through....specifically what happens to the treasury market?
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Re: The "Big Economic Lie" and why rates matter...

Postby SpinnerMan » Sat Oct 05, 2013 2:55 pm

Indaswamp wrote:I should have said "investors" instead of "people". The motives of a central bank are radically different than that of individual investors (or corporations even). Walk through what you think will happen IF the FED rate is negative....think it through....specifically what happens to the treasury market?

Nothing much magically happens when we move from 0.5% to 0.4% to 0.3% to 0.2% to 0.1% to 0.0% to -0.1% to -0.2% to -0.3% to-0.4% to -0.5%.

From slight positive to slightly negative it makes a slight difference and that is it.
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Re: The "Big Economic Lie" and why rates matter...

Postby Indaswamp » Sat Oct 05, 2013 10:13 pm

SpinnerMan wrote:
Indaswamp wrote:I should have said "investors" instead of "people". The motives of a central bank are radically different than that of individual investors (or corporations even). Walk through what you think will happen IF the FED rate is negative....think it through....specifically what happens to the treasury market?

Nothing much magically happens when we move from 0.5% to 0.4% to 0.3% to 0.2% to 0.1% to 0.0% to -0.1% to -0.2% to -0.3% to-0.4% to -0.5%.

From slight positive to slightly negative it makes a slight difference and that is it.

explain exactly what you think happens with a negative FED rate. It is a much bigger shift that you give it credit or possibly even realize.
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Re: The "Big Economic Lie" and why rates matter...

Postby SpinnerMan » Sun Oct 06, 2013 5:28 am

The banks would borrow near the maximum amount of their required reserves. Why would they not? If they are getting paid to borrow. As the rate gets close to zero, they are already going to be borrowing near the maximum already because it costs them nothing to do so. So as the cost goes down, they borrow more and more and when it crosses zero, they continue borrowing more. There are some transaction costs associated with borrowing, which are probably negligible, so once they turn a profit by borrowing as much as they can, they will borrow as much as they can and the fed will loan the maximum amount that this part of their power can produce.

Do you think they will borrow more than the maximum reserve requirements? Why would the fed permit that?

You seem to know what would happen. Why didn't you just explain it to start with? However, I took your quiz, now please provide the answer in your words and not from a link that doesn't address the question directly.

As far as pushing more loans out the front of the bank, again, nothing dramatically changes. It just makes them marginally cheaper and has marginal impact. There is no cliff. Just a marginal shift in cost.
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Re: The "Big Economic Lie" and why rates matter...

Postby Indaswamp » Sun Oct 06, 2013 7:24 am

SpinnerMan wrote:The banks would borrow near the maximum amount of their required reserves. Why would they not? If they are getting paid to borrow. As the rate gets close to zero, they are already going to be borrowing near the maximum already because it costs them nothing to do so. So as the cost goes down, they borrow more and more and when it crosses zero, they continue borrowing more. There are some transaction costs associated with borrowing, which are probably negligible, so once they turn a profit by borrowing as much as they can, they will borrow as much as they can and the fed will loan the maximum amount that this part of their power can produce.

Do you think they will borrow more than the maximum reserve requirements? Why would the fed permit that?

You seem to know what would happen. Why didn't you just explain it to start with? However, I took your quiz, now please provide the answer in your words and not from a link that doesn't address the question directly.

As far as pushing more loans out the front of the bank, again, nothing dramatically changes. It just makes them marginally cheaper and has marginal impact. There is no cliff. Just a marginal shift in cost.

Treasuries Spinnerman-not banks borrowing from the FED.
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Re: The "Big Economic Lie" and why rates matter...

Postby Indaswamp » Sun Oct 06, 2013 7:31 am

FYI-the treasury market dwarfs the intra bank lending market......
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