{"id":48242,"date":"2019-09-04T09:14:28","date_gmt":"2019-09-04T14:14:28","guid":{"rendered":"https:\/\/olduvai.ca\/?p=48242"},"modified":"2019-09-04T09:14:31","modified_gmt":"2019-09-04T14:14:31","slug":"negative-interest-rates-threaten-the-financial-system","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=48242","title":{"rendered":"Negative Interest Rates Threaten the Financial System"},"content":{"rendered":"\n

Negative Interest Rates Threaten the Financial System<\/a><\/h3>\n\n\n\n

Markets may need to be rebuilt on a new set of assumptions, but\u00a0we don\u2019t know what those should be or how they\u00a0would work.<\/strong><\/p>\n\n\n\n

\"Negative
Negative rates in the U.S. would have profound implications for markets. Photographer: Drew Angerer\/Getty Images<\/figcaption><\/figure>\n\n\n\n

Jim Bianco is the President and founder of Bianco Research, a provider of data-driven insights into the global economy and financial markets. He may have a stake in the areas he writes about.<\/p>\n\n\n\n

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Former Federal Reserve Chairman Alan Greenspan recently said he wouldn\u2019t be surprised if yields on U.S. bonds turned negative and if they do, it wouldn\u2019t be \u201cthat big a of a deal.\u201d<\/a> That seems to be a sentiment widely held in central banking circles these days, but it\u2019s wrong. Negative interest rates represent a threat to the financial system.<\/p>\n\n\n\n

To understand why, let\u2019s start with the existing fractional reserve banking system, which is more than a century old. For every dollar that goes into a bank, some set amount (usually about 10%) must go into a reserve account to be overseen by the central bank. The rest is either lent out or used to buy securities.<\/p>\n\n\n\n

In other words, the fractional reserve banking system is leveraged to interest rates. This works when rates are positive. Loans are made and securities bought because they will generate income for the bank. In a negative rate environment, the bank must pay to hold loans and securities. In other words, banks would be punished for providing credit, which is the lifeblood of an economy. As German bankers recently explained<\/a> to the European Central Bank:<\/p>\n\n\n\n

We already have a devastating interest rate situation today, the end of which is unforeseeable,\u201d Peter Schneider, who represents public-sector savings banks in the southern German state of Baden-Wuerttemberg, said on Wednesday. \u201cIf the ECB aggravates this course, that would hit not only the entire financial sector hard, but especially savers.<\/p><\/blockquote>\n\n\n\n

 \u2026click on the above link to read the rest of the article\u2026<\/p>\n","protected":false},"excerpt":{"rendered":"

Negative Interest Rates Threaten the Financial System Markets may need to be rebuilt on a new set of assumptions, but\u00a0we don\u2019t know what those should be or how they\u00a0would work. Jim Bianco is the President and founder of Bianco Research, a provider of data-driven insights into the global economy and financial markets. He may have […]<\/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":[83,124,18451,534,558],"class_list":["post-48242","post","type-post","status-publish","format-standard","hentry","category-economics","tag-bloomberg","tag-central-banks","tag-jim-bianco","tag-monetary-policy","tag-negative-interest-rates"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/48242","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=48242"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/48242\/revisions"}],"predecessor-version":[{"id":48243,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/48242\/revisions\/48243"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=48242"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=48242"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=48242"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}