A Quote by Janet Yellen
If it were possible to take interest rates into negative territory I would be voting for that.
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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?
How long can interest rates stay negative? Think about this. Not only are you lending your money to governments, but you're paying them interest for the privilege of doing so.
The real challenge was to model all the interest rates simultaneously, so you could value something that depended not only on the three-month interest rate, but on other interest rates as well.
So the stock market could have a negative wealth effect and weigh on capital spending, but a sharp decline in long-term interest rates would be an important counterweight.
I would also certainly continue to keep loan repayment interest rates as low as possible. And I would spread the financial aid a little less thinly across all income brackets.
When interest rates are high you want the average direction in which interest rates are moving to be downward; when interest rates are low you want the average direction to be upward.
The underlying strategy of the Fed is to tell people, "Do you want your money to lose value in the bank, or do you want to put it in the stock market?" They're trying to push money into the stock market, into hedge funds, to temporarily bid up prices. Then, all of a sudden, the Fed can raise interest rates, let the stock market prices collapse and the people will lose even more in the stock market than they would have by the negative interest rates in the bank. So it's a pro-Wall Street financial engineering gimmick.
The degree of monetary policy ease should be associated with the level of real interest rates, not nominal interest rates.
Stock price multiples are negatively correlated with real interest rates. As interest rates rise, the market multiple will fall.
And so Fannie Mae produces very strong results for investors in - when interest rates are high and when interest rates are low, in recession and during booms.
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.
If you let interest rates be freed, be set by the free market, they would rise dramatically. There would be a lot of broken furniture on Wall Street. It needs to be broken. The back of the speculative bubble would be broken and we could slowly heal the financial system. That's what I think we need to do but it's never going to happen because there's trillions of asset values dependent on the Fed continuing to suppress, repress interest rates and shovel $85 billion a month of liquidity into the market.
Let's have honest interest rates. Let's let the free market set interest rates in that zone where supply of savings is matched up with demand for real borrowing for capital projects.
The theory is that if you take interest rates negative, people are going to say, "That's a silly game! I'm not going to lend my money to governments who want me to pay them. I am going to go into the stock market where I can get positive returns!"
The art of banking is always to balance the risk of a run with the reward of a profit. The tantalizing factor in the equation is that riskier borrowers pay higher interest rates. Ultimate safety - a strongbox full of currency - would avail the banker nothing. Maximum risk - a portfolio of loans to prospective bankrupts at usurious interest rates - would invite disaster. A good banker safely and profitably treads the middle ground.
Do I believe it's possible that some young person, young voting actor, or even older voting member for the Emmys, would sit there and go, 'Yeah, that's a great performance, but oooooh, I just hate everything he stands for?' I don't believe that's possible.
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