{"id":17351,"date":"2016-02-03T21:24:22","date_gmt":"2016-02-04T02:24:22","guid":{"rendered":"http:\/\/olduvai.ca\/?p=17351"},"modified":"2016-02-03T21:24:22","modified_gmt":"2016-02-04T02:24:22","slug":"modern-finance-ill-be-gone-youll-be-gone","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=17351","title":{"rendered":"Modern Finance: I\u2019ll be gone, you\u2019ll be gone"},"content":{"rendered":"

Modern Finance: I\u2019ll be gone, you\u2019ll be gone<\/a><\/h3>\n
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In his book\u00a0Other People\u2019s Money: The Real Business of Finance<\/a><\/i>, author John Kay quotes Lord Keynes\u2019s idiom, \u201cMadmen in authority, who hear voices in the air, are generally distilling their frenzy from some academic scribbler of a few years back.\u201d The men and women with authority over monetary matters are indeed mad. Mad enough to see interest rates, not as pricing the present versus the future, after all, the idea that a dollar today is worth more than a dollar in the future is axiomatic.<\/p>\n

No, the Fed\u2019s crystal ball sees lenders paying for the privilege of going without the present use of their money so the largest debtor in history can continue to operate. In the just released\u00a0\u201c2016 Supervisory Scenarios for Annual Stress Tests Required under the Dodd-Frank Act Stress Testing Rules and the Capital Plan Rule<\/a>\u201d \u00a0the Fed, in its Severe Adverse Scenario, foresees,<\/p>\n

As a result of the severe decline in real activity and subdued inflation, short-term Treasury rates fall to negative \u00bd percent by mid-2016 and remain at that level through the end of the scenario. For the purposes of this scenario, it is assumed that the adjustment to negative short-term interest rates proceeds with no additional financial market disruptions. The 10-year Treasury yield drops to about \u00bc percent in the first quarter of 2016\u2026<\/p><\/blockquote>\n

Really, rates going negative would mean \u201cno additional financial market disruptions?\u201d \u00a0In a world with somewhere between\u00a0$700 trillion<\/a>\u00a0and\u00a0$1.2 quadrillion<\/a>\u00a0in derivatives exposure nothing out of the ordinary would happen? \u00a0\u00a0Some will pooh pooh the big numbers because on a net basis the exposure isn\u2019t even close to 1000 times 1.2 trillion. But, as Zero Hedge explains, \u201cnet immediately becomes gross when just one counterparty in the collateral chains fails \u2013 case in point, the Lehman and AIG failures and the resulting scramble to bailout the entire world which cost trillions in taxpayer funds.\u201d<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Modern Finance: I\u2019ll be gone, you\u2019ll be gone In his book\u00a0Other People\u2019s Money: The Real Business of Finance, author John Kay quotes Lord Keynes\u2019s idiom, \u201cMadmen in authority, who hear voices in the air, are generally distilling their frenzy from some academic scribbler of a few years back.\u201d The men and women with authority over […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[63,303,305,12194,458,7617],"class_list":["post-17351","post","type-post","status-publish","format-standard","hentry","category-economics","tag-banks","tag-fed","tag-federal-reserve","tag-john-kay","tag-john-maynard-keynes","tag-mises-institute"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17351","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=17351"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17351\/revisions"}],"predecessor-version":[{"id":17352,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17351\/revisions\/17352"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=17351"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=17351"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=17351"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}