A Quote by Charles L. Evans
Negative interest rates have been employed by many, many central banks.
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Negative interest rates hurt banks' balance sheets, with the 'wealth effect' on banks overwhelming the small increase in incentives to lend.
The central banks cannot control interest rates. That's a mistake. They can control a particular rate, such as the Federal Funds rate, if they want to, but they can't control interest rates.
Central banks have gotten out of the central banking business and into the central planning business, meaning that they are devoted to raising up-if they can-economic growth and employment through the dubious means of suppressing interest rates and printing money. The nice thing about gold is that you can't print it.
I've always believed that a speculative bubble need not lead to a recession, as long as interest rates are cut quickly enough to stimulate alternative investments. But I had to face the fact that speculative bubbles usually are followed by recessions. My excuse has been that this was because the policy makers moved too slowly - that central banks were typically too slow to cut interest rates in the face of a burst bubble, giving the downturn time to build up a lot of momentum.
When you own gold you're fighting every central bank in the world. That's because gold is a currency that competes with government currencies and has a powerful influence on interest rates and the price of government bonds. And that's why central banks long have tried to suppress the price of gold. Gold is the ticket out of the central banking system, the escape from coercive central bank and government power.
Business cycles lengthened greatly during the 20th century, as central banks learned to manage national economies by raising and lowering interest rates.
Logically, it may be argued that banks could indeed lower interest rates and make up their profits through larger borrowing volumes. But banks, in turn, could justify exorbitant rates by arguing that they cater to a riskier segment.
A higher IOER rate encourages banks to raise the interest rates they charge, putting upward pressure on market interest rates regardless of the level of reserves in the banking sector. While adjusting the IOER rate is an effective way to move market interest rates when reserves are plentiful, federal funds have generally traded below this rate.
For people who grew up in the last four decades of the 20th century, it is hard to grasp the concept of negative interest rates. How is it even possible? If interest rates are the price of money, is the marketplace broadcasting that money is on sale? Are we just giving it away?
I will say this: the central banks can actually support growth beyond a point. When there is no inflation, they can cut interest rates, and that is the way they support growth, but if you cut interest rate to the bone, there is nothing more to cut. It is very hard to support growth beyond that.
Very deliberately, the central bankers have punished savers, pushing interest rates so low that any truly safe investment - and older people are always advised to play it safe - yields a negative return when inflation is factored in.
The impact of low interest rates is broad and deep. Many Americans rely on interest income from their savings to help cover their cost of living.
Central banks are choosing to increase their gold holdings as a percentage of total reserves. They obviously think there is a reason to do that. It doesn't make sense to back up one currency with a hoard of other paper currencies. There needs to be a real anchor there. I think that central banks are well behind the curve. If you look at the percentage of above-ground gold controlled by central banks, it's historically low. Hence the fact that central banks are trying to increase their holdings. They've got a long way to go to get where they need to be.
The Fed has a lot of power in the economy because it has a big impact on the supply and cost of credit, that is, interest rates. It also plays a key role in supervising banks and historically has seemed to take it easy on the banks when it shouldn't have, such as in the lead up to the financial crisis.
As many have pointed out, it is not clear that we need so many public sector banks. The system could be better off if they are consolidated into fewer but healthier banks.
There have been times when the Federal Reserve has restricted the money supply and raised interest rates to gain an end, which had much better been left to another Government agency or the Congress to attain. The country could have had lower interest rates without sacrificing anything else.
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