{"id":20326,"date":"2016-04-28T18:44:44","date_gmt":"2016-04-28T23:44:44","guid":{"rendered":"http:\/\/olduvai.ca\/?p=20326"},"modified":"2016-04-28T18:45:14","modified_gmt":"2016-04-28T23:45:14","slug":"gold-and-negative-interest-rates","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=20326","title":{"rendered":"Gold and Negative Interest Rates"},"content":{"rendered":"
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Gold and Negative Interest Rates\u00a0<\/a><\/h3>\n<\/div>\n
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The Inflation Illusion<\/strong><\/p>\n

We hear more and more talk about the possibility of imposing negative interest rates in the US. In a\u00a0recent\u00a0article<\/a>\u00a0former Fed chairman Ben Bernanke asks what tools the Fed has left to support the economy and inter alia discusses the use of negative rates.<\/p>\n

We first have to define what we mean by negative interest rates. For nominal rates it\u2019s simple. When the interest rate charged goes negative we have negative nominal rates. To get the real rate of interest we have to subtract inflation from the nominal rate, so to speak remove the illusion of inflation.<\/p>\n

\"1-realThe \u201creal\u201d federal funds rate (effective FF rate minus CPI-U y\/y rate of change)<\/p>\n

Real interest rates have been negative fairly often, including for most of the period since 2009. The main problem consists of choosing the appropriate measure of inflation.<\/p>\n

Since the calculation of price inflation is highly subjective and easy to manipulate, one possibility is to adjust nominal prices to gold to calculate real interest rates. In the chart below you can see nominal U.S. 10-year Treasury rates versus gold-adjusted rates since 1962.<\/p>\n

\"2-treasury<\/a>Nominal vs. gold-adjusted treasury yields\u00a0(actually, the calculation of \u201cprice inflation\u201d or a \u201cgeneral level of prices\u201d is not merely subjective \u2013 it is literally impossible) \u2013 click to enlarge.<\/p>\n

Ben Bernanke says in his article:<\/p>\n

\u201cThe fundamental economic constraint on how negative interest rates can go is that, beyond a certain point, people will just choose to hold currency, which pays zero interest. (It\u2019s not convenient or safe for most people to hold large amounts of currency, but at a sufficiently negative interest rate, banks or other institutions could profit from holding cash, for a fee, on behalf of customers).\u00a0<\/em><\/p><\/blockquote>\n

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

Gold and Negative Interest Rates\u00a0 The Inflation Illusion We hear more and more talk about the possibility of imposing negative interest rates in the US. In a\u00a0recent\u00a0article\u00a0former Fed chairman Ben Bernanke asks what tools the Fed has left to support the economy and inter alia discusses the use of negative rates. We first have to […]<\/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":[5728,68,13668,303,374,426,534,558,1389,3650],"class_list":["post-20326","post","type-post","status-publish","format-standard","hentry","category-economics","tag-acting-man","tag-ben-bernanke","tag-dan-popescu","tag-fed","tag-gold","tag-inflation","tag-monetary-policy","tag-negative-interest-rates","tag-nirp","tag-us-federal-reserve"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/20326","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=20326"}],"version-history":[{"count":2,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/20326\/revisions"}],"predecessor-version":[{"id":20328,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/20326\/revisions\/20328"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=20326"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=20326"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=20326"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}