THE WOLF STREET REPORT: How Negative Interest Rates Screw Up the Economy

Now they’re clamoring for the NIRP absurdity in the US. How will this end? (11 minutes)

You can read the full transcript here.

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  149 comments for “THE WOLF STREET REPORT: How Negative Interest Rates Screw Up the Economy

  1. timbers says:

    Wolf’s headline asks:

    “Now they’re clamoring for the NIRP absurdity in the US. How will this end?”

    It will end when someone at the Fed has the balls to say:

    “Effective immediately the Fed interest rate is 3.00%. It is the most perfect interest rate that has every existed for this economy. It may be increased based on data. The Fed interest rate is for practical purpose fool proof and incapable of error and that is all any rational person can ever hope for.”

    Period. Total blackout and silence from the Fed.

    • historicus says:

      What if the Fed was held to their 2nd and 3rd mandates, mandates which are the conditions to be met, required to be honored, to allow their authorization..
      Second….Promote stable prices. The 2% inflation they magically target increases prices near 25% in ten years…stable?
      Third….Promote moderate long rates. Moderate, by definition means not extreme. Moderate rates actually promote economic activity, give fair returns to lenders, discourage prodigal and irresponsible spending, and discourage misallocation of resources. Moderate is not 4000 years lows in long rates.

    • sc7 says:

      Agreed, this is precisely what we need, even if it causes growth to cool for a bit.

      We all thought Powell was on to this until his abrupt u-turn at the turn of the year.

      • MCH says:

        Either Powell is Trump’s boy at the Fed or the Fed is seeing something coming down the line that is going to tank the economy hard.

        I wouldn’t be surprised if we have another contagion or something like it lurking out there. The thing is, Yellen should have been raising rates faster two years ago.

        • d says:

          FED has many problems, most of the serious ones created by the current occupant of the white-house.


          1 It is one of the few even partially sane CB’S in the western world, trying to run a positive rate. This has huge negative consequences for the $ in an insane NIRP QE dominated financial system.

          2 When you have a positive rate, even a measly 2% > and all the other large economies have NIRP and/or are overtly and COVERTLY easing/printing like crazy. Your currency is going to climb through the roof making your exports UNTENABLE purchases.

          The $ demand issue and related US National $ asset issue (which also effects the $ global value) is simple, start controlling who can buy US T notes and who can hold us Land/Buildings and Stocks.

          One of 2 countries not to experience a major land bubble in Asia/Pacific (NOT INCLUDING APARTMENTS) Thailand and The Philippines. For the simple reason the foreign speculators/Haven seekers, can not own a Majority % in: land, Companies/Corporates/Entities, or buildings, not constructed on leased land.

          FDI is a good thing, uncontrolled FDI is not.


          which is why the RBNZ cut its rate and made a huge jawbone attack on the currency with an “NIRP is possible here” jawbone attack.

          $ NZ being the or one of the most heavily trade FX listings by a “volume in circulation, volume in use, volume traded, measure” ( I understand that how they measure all traded currencies).

          NZ has recently finally started to roll back the insane WTO, IMF, World bank deregulate everything, completely free market, free trade, completely unregulated FDI policy.

          As IT DOSENT WORK FOR ANYBODY, EXCEPT THE 1% particularly when every nation is not playing by the same rules.


          WE now have globally, a trade confrontation, and an undeclared Currency race to the bottom (Competitive Currency Devaluation).

          The people responsible for this can be found in:

          Peking, (PBOC Trade/Industry ministries) CCP.

          US Congress.

          Brussels, (ECB, Trade/Industry ministries), Paris deliberate restrictive trade practices, particularly in state subsidised agriculture,

          Berlin which maintains an Economy based in being a net exporter.

          Just like the biggest policy GLOBAL Net exporter of all CCP CHINA.

          The only countries that can justify running a net trade surplus, are Volume PRIMARY PRODUCTS commodity exporters, This should be a natural supply demand issue. And a natural resource issue, not accelerated/increased by deliberate state assistance to food production,

          Not a STATE dictated MUST RUN trade surplus, which is CCP CHINA policy, and has been since 1973.

          For every $ of trade surplus somewhere there MUST BE a $ of trade deficit.

          When the same nations, for over half a century, run a policy of DELIBERATE trade surplus Every 1/4 in manufactured goods.There MUST BE Global trade issues. SERIOUS ONES.

          For Most of those 50 Years America has been a net LOOSER.

          From 1992 to 1996 POTUS attempted to be hard on china, and consistent and firm on US financial regulations.

          He was steamrolled in the other direction by a Predominantly REPUBLICAN DOMINATED CONGRESS which continually ran baseless get the POTUS investigation starting the second round of a congressional partisan gridlock that is still alive and well today.

          So America, and by default. The entire planet. Has only 1 place to blame for all of this national and global Havoc we are experiencing.

          The American CONGRESS, predominantly interested in first filling its own PERSONAL pocket.

          Members of congress and the POTUS are the only people in the US immune from insider trading legislation FOR SO WHY???????

          Electorates, in democratic countries Elect the governments, they deserve. See greece since at least 1900. Argentina since the end of WW II.

          Unfortunately the rest of the planet has to put up with the actions of a: misinformed, uneducated, and frequently “American Idiot (As in Green day)” American electorate.

        • Brent in Toronto says:

          d, great comment, very thought provoking. I try to keep it positive, but Congress seems so dysfunctional and beholden to people who would lose money if the remedies you mention were implemented. Is there a point where the winners say “I have enough”? I think the very stability and foundation of trust in basic institutions has crumbled, and elites are playing with fire by continuing to promote special interests and selective benefits for the wealthy. When resentment stews for so long, it is impossible to put humpty dumpty back together again.

    • van_down_by_river says:

      Good point, it will never end because no one at the Fed has balls, interest rates will never go to 3%, inflation will get out of control and the central bankers will continue to debase and brush aside inflation concerns with a sanguine statement that their preferred metric shows there is no inflation.

      The world’s central banks have obviously accepted the fact that their debasement policies will spin the world into an inflationary feed-back loop. I suggest you accept this fact as well because it is fact.

      When the dust settles, and the old currencies have no value, China will have gleaming new infrastructure and technology. What will Americans receive in exchange for the wipe out of the dollar? After the new dollar is conjured (reserve status now gone) Americans will still be stuck paying government employee and military pensions (inflation adjusted) in the new currency and rotting infrastructure. The illusion of getting something for nothing is seductive but when the mirage is gone you discovery you are just a debt slave after all.

      So let’s go ahead and buy Greenland, we can obviously afford it. Let’s make Denmark an offer they can’t refuse, heh, heh. We should rename the island we-own-everything island (do we own the people as well because we have apples and other crops that need picking). Let’s buy Canada after that, call up the queen and ask how much she wants. Whatever she asks Powell can afford it.

      Got assets?

      • JoePlateau says:

        The Danes will probably want to buy the US. They can afford it, they have negative interest rates.

      • Argus says:

        I wouldn’t be too sanguine about China’s economy. They are following in the West’s footsteps with excessive debt at all levels, including personal. They are very dependent on domestic consumer spending, which is starting to slow down. One smaller bank has already failed and credit is becoming more difficult to obtain.

        • Wisdom Seeker says:

          Argus – 3 significant Chinese banks have failed. Not really small either. Not the Titanic ones, but maybe the tip of an iceberg?

      • Brent in Toronto says:

        would love to know if forumers (and Wolf) believe we are heading to a deflationary vs. inflationary recession? Or will it be deflation followed by inflation?

    • Jim says:

      Sounds great. Never happen. The United States can afford that interest rate on our debt.

    • JoePlateau says:

      I would think that negative interest rates will ultimately lead to a bankrun.

      • Dale says:

        That is why it is important to move to a cashless financial transaction system. The Fed is currently working on such a system, to be deployed in the next few years.

        Then cash can be banned, and a bank run will have no impact: You will just be able to transfer your money between electronic accounts. That can either be to another bank (i.e., no impact) or to an uninsured account where you are subject to 100% loss.

        • JMiller says:

          From what I read the U.S. is no where near going to a cashless system in a few years. About half of all small transactions are still in cash. The estimates that I saw stated it will be at least 10 years before the U.S. goes cashless.

          Also individual bank runs can still happen if many depositors transfer their money from a bank to another bank or to a credit union or to U.S. Treasuries etc… So if one or more larger banks have bank runs than of course it could have an impact.

        • Dale says:


          I’m just connecting the dots. Wolf has brilliantly described what is happening with NIRP, and we can see that the Fed (the last major NIRP holdout other than China, which going its own unsustainable way) is weakening in its resolve.

          So then the question is what it will take to make NIRP possible.

          It doesn’t mean that I like it. The Fed’s job traditionally has been to pop bubbles (aka taking the punchbowl away) in order to prevent financial instabilities from growing, but it failed in that regard 10 years ago…

        • d says:

          You will then see many Nettller type operations that pay 0% and live on small fees but do not lend/supply credit.

          Which will make bank runs possible and kill many small national banks.

          Bank charges and negative interest rates combined, who do they think they are.

          I have two accounts that do not charge fees and give free debit/EFTPOS cards at 0% interest and no minimum balance. I siphon small amounts into them as required.

          If enough Nations go NIRP cashless, they WILL KILL the fiat cow.

          People will simply return to the metal certified PM coins, you can buy with cashless transactions.

          Many goods outlets, that wont take the coins, will not gain enough business to sustain themselves.

          Complete cashless will only advantage, The state, banks, and the Amazon’s Etc.

    • rhodium says:

      It’s not an issue of balls. I said on here over a year ago, important figures at the fed and economists for a while now have made a number of statements indicating that the next crisis/recession would bring with it much more intense policy actions, hinting that at the very least nirp would be on the table. We can argue all day long what a more realistic cost of living inflation rate is. Personally I think the official rate is slightly understated, but we have not seen high general inflation at all, despite massive increases to the monetary base by qe.

      The reason is, wages have not increased fast enough to generate inflation. They have only increased for the upper class and that’s what’s driving asset inflation to a large degree, because of how the rich park their money. Investments have not been going into the enterprises that generate a lot of labor demand.

      If the economy does go into recession again, there will be deflation, there will be nirp, and in an effort to combat deflation, the fed will either go shock and awe qe, or you will see literal mmt style helicopter money if the political situation allows it. Whether this generates “cola” style inflation will depend on the relative amount and where the money actually flows initially and for how long. Either way though, I don’t think there is any option for them other than to try to inflate away the value of our current debt levels in all sectors. Hold any assets but bonds for the long-term, but in the short run bonds may still net a large profit if only because nirp madness will grab the world by the throat.

      • sunny129 says:

        Trying to inflate away???

        BOJ been trying over 2 decades?

        ECB is trying since 2015, now with 17 Trillions in NIRP

        Fed is been trying shoot beyond 2 % since ’09, going no where!

        What makes you think that THEY can inflate away???

        Public debt can be delayed with creation of digital $ out of thin air!

        But about the Private DEBTS? Corporate debt, Student debt, Household debt, auto loans++

        DE-leveraging Deflation of ASSETs happen first before any kind of inflation!
        Borrowers go bankrupt and Lenders holding bag for all the ‘collapsing of the collateral for those dents – Wall St wealth assets!

        DEFLATION first!

        • Brent in Toronto says:

          Central Banks do seem willing to do more proactively now, rather than waiting for the recession. I am hoping there will be enough time for deflation and unwinding of asset prices, but in this proactive environment, will CB’s unload shock and awe QE or helicopter money much sooner?

      • LB says:

        Official UK & USA inflation rate 2%.

        • twinky twonk says:

          I’m sure they are if you exclude housing and replace it with usb sticks

  2. Robert says:

    “Now they’re clamoring for the NIRP absurdity.” For the banks, it’s not an absurdity, it’s a dream come true: you paying THEM for lending them your savings (and ,maybe even being subject to a “bail-in” if they get in trouble, as happened in Europe.
    The same bankers are working overtime for a “cashless” society which means you cannot stuff cash in your mattress as a defense.

    • historicus says:

      Imagine if banks enjoyed negative rates on one end, and continued to get paid on excess reserves on the other end…

    • RD Blakeslee says:

      But you CAN convert fiat money to hard assets – precious metal, land …

      And some, e.g. silver U.S. coinage, will likely be useful in transactions if fiat is compromised.

    • The collapse of the entire financial system is a dream come true? I hope your money isn’t in U.S. banks.

  3. William Smith says:

    This situation can only have come about because of monumental incompetence or malfeasance. Who stands to gain the most when the western financial system collapses? Have they started burning the [now obsolete] economic text books in the colleges yet?

    • envo says:

      Imagine being in business school right now and realizing that everything you are learning is obsolete. Everything.

      • Wisdom Seeker says:

        No worries… pretty much all of Econ has been wrong since forever (e.g. the fundamental assumption that humans are always and everywhere profit-maximizers), and they destroyed another fundamental assumption in most econ theory when they abandoned the gold standard. Most economists didn’t even notice. Even Nobel laureates like Krugman had no idea how banking actually worked until the last 5 years, and now he has only a small idea.

        It would be a service to the country if business schools actually taught something useful, though. The last Harvard Biz grad I met couldn’t even use a protractor to measure an angle…

    • historicus says:

      The ECB is directed to action by the countries of Europe. Those countries have decided they will no longer pay interest for their debt.
      This is socialism failed, and the attempt to rescue is more socialistic action, economic decision by committee, with the ECB implementing NIRP.

    • Unamused says:

      Who stands to gain the most when the western financial system collapses?

      It’s not who, Mr. Smith, but how? Hint: it’s not about money. Only little people worry about money.

      Sitting ducks are advised to . . . remain seated.

    • deleterio says:

      Prof. Richard Werner (@scientificecon on twitter, a German living and working in the UK, the one who coined the term “quantitative easing”) thinks that (and how can you not) these policies’ goal is to destroy independent banks in Europe (where, eg Germany, about 2/3rds of banks are small independent regional banks focused on serving the Mittelstand) and crush the broader financial system so the new iteration can be built with an eye towards a United States of Europe.

      • d says:

        This, Since it was first mooted, is WHY the Euro was Implemented, BEFORE, political and fiscal union in the EU.

        ” the warring tribes of Europe will never unite unless FORCED to” One of the fathers of the Euro. All the information related to him and it, is/was out there. seems to be getting harder to find.

        The Eur is the implement to administer that FORCED union. It was always to be so.

        The events in America post the repeal of glass stegal have rather disrupted their Brussels based Fascist Europa plans.

        They may even have made this method of forced political union in Europe moot. As the Lower levels of populace in the EU have finally smelt the Facist dictator rat that tows the EUR and seen its stools. Caused by Junker and co pushing More union now, instead of backing off and waiting for economic recovery post 2008.

        Fascists/Communist (at heart they are the same) dictators are the most unrealistic and impatient of dictators, especially those still in the closet.

  4. SocalJim says:

    Imagine negative mortgage rates … a rebate to reduce the monthly payment. A real estate investors dream. But, I doubt it will happen in the next several years. But, it is a nice daydream.

    • Briny says:

      That’s already happened, in Denmark as I recall.

    • Nicko2 says:

      negative interest rates would only push RE prices higher.

    • envo says:

      When that moment arrives, I suggest enjoying it while it lasts. Because when the entire world goes ‘Denmark’ the end of days cannot be far off.

      • Xabier says:

        ‘Something is rotten in the state of Denmark’ – how prescient……..

      • Pl’n’l says:

        What if the solution to all this is, for the Fed to admit it doesn’t know more than all the worlds markets and all the worlds market players, and simply steps aside and lets markets function?

        • SocalJim says:

          If I understand you correctly, you want the FED to tighten conditions such that we get another credit crunch from impaired assets on bank balance sheets … you just want another 2009 so you can buy the dip. The FED will not allow another bank balance sheet crunch.

    • Robert B. Langabeer says:

      It is happening in Denmark

    • Petunia says:

      A NIRP mortgage will only benefit a buyer with “good” credit, those who need a break the most will be ineligible for these “goodies” because they are undeserving, as usual. The other side of that deal is that the savers will be subsidizing the borrowers, usually the same bunch.

      • Just Some Random Guy says:

        Are you suggesting people with crappy credit scores should get the best rates?

        • Petunia says:

          What I’m suggesting is that if they are giving money away, they should give it to people that need it, or people they have stolen from in the past.

  5. NotMe says:

    Time to eliminate central banks, and bring back bank failures.

    Back in the US before the Fed, we had regional banking panics because of banks loaning out too much for too high a risk. The fed was brought in to save banks from their gross stupidity and failure. Everyone was to get a participation trophy because the Fed would bail them out. Over time, capital generated at the local level was federalized and removed from local hands to collect political and monetary power in the hands of the wise, away from the bumpkins.

    All that was created was a large candy machine with no accountability for bad risk decisions. The fed yanked failure from the jaws of bank failure.

    Today everyone everywhere in the US knows that their deposits are safe and they not only do not care how stupid the bank is that they deal with, they need it to obtain the best possible terms. Remember the high yield on S&L deposits, all the risky banks got all the deposits.

    Let the federal government create all the cash money, and let the banks loan out. Let the depositors decide if they want their money in a risky banks, and limit the size of banks to regions, or limit the number of branches.

    • NotMe says:

      Given that branch banking is not a real idea any more, the better model is the venture capital model where you deposit in a tranche of a limited size. The risk of banking failure is limited to the tranche where you deposit. This exposes the depositor to what his real risk is: The creditors that the bank syndicates.

    • Nicko2 says:

      The average American consumer has consistently proved themselves incapable of making rational choices with their money, the last thing the world needs is to eliminate an independent Fed.

      • sierra7 says:

        How about bringing back some of the “rules of the game”….start with re-instating the principles of Glass Steagal???????? “Simplicity Clarice, Simplicity!” (Silence of the Lambs movie)
        This is NOT complicated.

      • van_down_by_river says:

        The world does not have an “independent Fed”.

        As Bernanke stated, it is impossible for the U.S. Government to default on it’s treasury debt because it owes the debt in it’s OWN currency. Does that sound like central bank independence to you?

        Government spending is out of control (we are now openly proposing the purchase of a sovereign territory from a foreign country). The Fed has no issue with this out of control spending, in fact the reason the Fed has given for resuming QE infinity is to fund government spending. This is the end of the line for the currencies.

      • Petunia says:

        I’m willing to bet you a bunch of welfare moms could do a better job running the economy than the fed.

        • GirlInOC says:

          Any women.

          Women would do a better job running the economy AND the world.

        • GK says:

          Back in the day, in Northern Ireland we used to say the way to fix the country was to put the mums in charge. Then they would make everybody sit down and play nice.

          Fast-forward to 2019, we’ve got Foster and McDonald and WOW we were EXTREMELY wrong.

  6. stuff says:

    Food for thought, the model was screwed up — and this time, stuff is different:

    A highly hedged warning: Buried on page 7 of the new study is a warning that the probability of a recession had increased significantly since the original study was done about a year ago: “As of the end of the sample period in early 2019 (and the time of this writing), the near term forward spreads forecast a substantially elevated probability of a recession.”

    Indeed, Figure 3 in the study clearly shows that recession risk jumped to 50% (based on first-quarter 2019 data available only through January). Interestingly, this important update wasn’t mentioned in the summary paragraph at the beginning of the study. However, the charts in the paper show that the odds of a recession increase most significantly when the near-term forward spread is markedly below zero, which it was not as of the most recent analysis.

    “The most prominent false positive during our sample came with the anticipated easing triggered by the spread of the Asian financial crises in 1998, which did not result in a recession in the U.S. It is not hard to imagine that similar scenarios could generate additional false positives in the future. The near-inversion of the near term forward spread at the end of 2018 seems to have been associated with market perceptions of significant risks to the global economic outlook, including the threat of escalating trade disputes. Whether those risks manifest in a recession remains to be seen.”

    • historicus says:

      The inverted yield curve, the alleged forward indicator of recession, has occurred not because of fear of economic slow down but rather because of NIRP in Europe.
      The inversion is said to be the indicator, but has it ever happened with NIRP in Europe? No. The arbitrage between rates shoved to negative by the ECB and our rates is causing the inversion……along with anti Trumpers blaming and hoping for a recession to sway an election. IMO

      • YC inverted when investors reallocated into bond funds. There is little reason for a US economic recession, or a financial recession while there is too much liquidity, (Fed reversed course while all the data was hot) and no place to go, finds the safest haven (higher yield relative while the dollar promises no penalty). Europe is probably in an economic recession but they are on solid ground financially with NIRP. US chooses to be hot money central, and DJT cheerleaders the rally (not as comely as Maria B) The nut will crack we will follow Europe bad news for US cracker capitalists and their candidates. Manufacturing heads out the backdoor, again. Maquiladoras… US consumers Si, US jobs, No.

  7. Michael Gorback says:

    It all should have fallen apart back in 2012 except Draghi gave the “Whatever it takes” speech. Seven years later it’s only gotten worse, like putting Bandaids on a brain tumor. NIRP is like house-flipping: don’t be the greater fool.

    In the land of the NIRP the non-interest-bearing asset is king. What can’t pay negative interest and is fungible? Cash and PM.

    • envo says:

      If the CB’s sit o their hands we would have collapsed in 2008.

      Fortunately they adhered to doing whatever it takes to keep this sh%tshow going and we’re now on year 11 of borrowed time.

      Go CB’s Go!

  8. bungee says:

    Holding physical gold makes it a lot easier to watch. Central bankers tell themselves the same thing.

  9. Lobo Loco says:

    Wolf don’t get mad, this is interesting:

    According to Yardeni: “The two-year Treasury note yield tracks this series closely, suggesting that it is also a good proxy for the market’s prediction of the federal-funds rate a year from now.”

    When he wrote that just a few months ago — the 2-yr was @ 2.25%

    Today, 2-yr is @ 1.83% !!!

    That’s like a 23% drop .. not sure what the basis point drop actually is, but if the FFR drops that far in a year, how can that not cause a bit of mild panic and not impact GDP and the election? This is fairly wild stuff.

    • Iamafan says:

      You don’t have a real market with QE there. So, because QE distorts everything beyond recognition you really can’t predict accurately anymore.

      • d says:

        ” because QE distorts everything beyond recognition”

        The word on this out there since 2009 is finally starting to spread a little.

        The no news is bad news phase of FX trading, post 08 event, is what showed this.

  10. Memento mori says:

    how will it end? I dint hear any conclusive answer on your report. Obviously this is not easy question and no one knows the answer but other than this is a crazy idea and that it will not end well , I haven’t heard any arguments why. Nordic countries and Switzerland are already deep into negative territory -1% and have been for some time, nothing seem to be happening. Then if you save your money, when CB can print out of thin air, why should you be entitled to any interest? Why should people who borrow money pay any interest at all? After all its not your money they are borrowing, CB can print as many as they need to. Paying interest on money seems like an immoral thing to do. And if inflation is running at 4% that is your problem if you want to keep your money in cash, no?
    I think this negative interest rate environment might be with us for years, and we could probably test -5%. How do you invest in such an environment?

    • Nicko2 says:

      Invest globally, plenty of fast growing emerging markets with tasty interest rates.

    • envo says:

      You look for the next bubble company – you know, those companies that lose billions yet their share price keeps on rocketing. Make sure you get in early, ride the bubble and exit. Then look for the next bubble company.

      Alternatively you could just go to a casino and put your cash onto red.

      This is well and truly a completely ridiculous situation.

      • polecat says:

        I want off Planet ‘Bank$ter Acid’ ASAP !

        What the Central Banks REALLY want, is for the lowly plebs to just Die !! They care nothing for me and mine !

    • Kenny Logouts says:

      Malinvestment is rife when there is lots of money seeking yield.

      Which seems to make the system more delicate and vulnerable.

      Hold on to your hats.

  11. TownNorth says:

    If interest rates are negative where does that take P/E ratios and cap rates? When a system becomes leveraged around profound valuations it becomes almost impossible to unwind without creating a crisis.

    • d says:

      The same place QE took them.

      Known in many older financial circles as “file 13” you know the one they take out and shred then burn at the end of each day.

  12. envo says:

    Since nobody seems to know what the implications of negative interest rates are, and we are seeing a trillion per week of debt going negative, one has to wonder – are we witnessing the beginning of the end?

    Are the Central Banks hunkered down in a trench completely out of ammunition and throwing empty weapons at the enemy?

    I’ve asked my bank a what if question as in what if rates go negative on mortgages, can I refi my properties on interest only terms and get paid to hold the mortgages?

    A money for nothing, chicks for free situation.

    Three days now and no answer yet.

    • MC01 says:

      Three weeks have passed since I contacted one of the banks I work with (one of the Europe’s largest banks, deemed “systemic” and hence too big to fail) to buy Swire A & B stock. Again this is a win-win situation for the bank: they sell me something, get some fees in the process and leave me with the risk.
      One week later I rang up and the clerk processing my request had yet to hear from the headquarters. We’ll call you back next week. I am still here waiting, so I wouldn’t put much faith in your request being handled in timely fashion.

      To all those who think there’s a sinister conspiracy afoot: your omnipotent banks cannot even answer a simple refinance question and sell some stocks.
      Mao Zedong had a definition for these people: paper tigers.

      • Nicko2 says:

        Most banks are closing branches and downsizing. Even off-shore private banks.

        • MC01 says:

          And what has this to do with not answering to a customer’s request? That’s just bad business.

          Banks always find the time and resources to pester us customers with stuff we don’t want and we don’t need, but when the customer goes to them with a request they are completely lost.

          Until 2015 investing on extra-UE/extra-US markets was much easier than it is today: Brazil, China, Japan etc were if not a mouse click away at least a phone call away. To give a stupid example I bought Petrobras and Sasol stocks (laugh as much as you want because I deserve it) over the phone back in 2010.
          These days? Staffs are only trained to push the customer towards what the bank wants, and to be honest they are not very good at that as well, perhaps because the products are as appetizing as the menu of a Scottish restaurant.
          Of course threatening to take your business elsewhere yields some results, but what kind of stupid business model is that?

      • Paulo says:


        I switched insurance companies due to this same problem. Between cars and property we buy about $5500 worth per year. I figured that’s worth a real person to talk to when I call with a question or problem. I just popped into their office the other day and a bright young face was working in a desk beside the door and directed me to the agent I needed. Screw voicemail and waiting for return calls at their convenience.

        Plus, the premiums are lower.

  13. Iamafan says:

    Ladies and gentlemen, rates are still about 2% and highly inverted. We are quite aways from NIRP. We can always go back to ZIRP or near zero. The experiment failed. And I don’t think they have any idea how to fix it without default.

  14. medial axis says:

    I think it’ll “end” with total loss of faith in (centrally controlled) fiat currencies. People and financial markets will turn to decentralised currencies such as bitcoin. I think this would likely happen anyway, even without this crisis, as more and more of our economy is moving online and that demands digital cash for it to function economically (third party/centrally controlled currency is far too expensive).

    But we also need to learn the lesson of past mistakes. AISI the main lesson is that the whole idea you can use interest rates and/or varying the supply of money to control the economy is non-sense. Yes, it may affect the economy but that’s not the same as controlling it. Build a system which has redundancy, so that if one region fails it doesn’t bring the whole lot down. Trouble is, such a system appears less efficient if viewed in the short term and, as we know, short term is how politician think. So perhaps it’s time we got shot of centralised control altogether.

  15. historicus says:

    The Fed (Bernanke) promised QE would end, balance sheet trimming begin, when unemployment dipped below 6.5%. (WSJ July 2009)
    Where are we now?
    Unemployment under 4, stocks near record highs, and they now promote MORE QE.
    The Fed won’t roll off their balance sheet because they can’t. The stimulus can not be removed lest it undo that which it was originally intended to provide.
    For every action, there is an equal and opposite reaction…in physics and economics.

    • d says:

      FED Balance sheet size is not that far from where they want/need it to be.

      If they could ditch the MBS at a good price they would in fact need to BUY T’S to raise the balance sheet back to where it needs to be, related to cash in circulation and size of current size of economy.

      Wolf has written this more than once (Or words to that effect).

  16. unit472 says:

    Bank profitability aside lets look at this from the POV of the average guy. I’m in my mid sixties with a comfortable nest egg. I can now get 2.5% on a bank CD. Not a lot but if we go back to sub 1% interest I have to start spending my capital to live. This will reduce the amount I will leave to my heirs. Further, I can’t spend like I could when banks paid 3 or 4% on CD’s.What does this mean for the real economy. It means I don’t buy a new car, take a trip of give expensive presents for Xmas.

    Low interest rates don’t do a lot for low income people who have ‘credit issues’ so they don’t get low interest loans. For middle aged, middle income people they must save more to make up for the lack of return on their savings.

    This is the paradox of low interest rates. Those who have money don’t need to borrow and those who don’t have money don’t get low interest rates because they aren’t credit worthy. Only governments and corporations benefit but share buybacks don’t increase retail sales and the consumer is 70% of our economy.

    • Nicko2 says:

      Good observation.

    • d says:

      “Those who have money don’t need to borrow and those who don’t have money don’t get low interest ”

      I worked in banking pre glass stegal repeal.

      Even then PRUDENT banks really weren’t interested in lending to people who needed the loan, even if they could genuinely afford it, without onerous conditions and rates.

      Banks have lots of OPM. Hence they think they have the wright to NO RISK (To themselves) investments.

  17. David Hall says:

    Australian real estate prices started to fall in 2017. Their central bank cut rates to 1% this summer. Home prices bounced.

    Germany cut rates to below zero and has seen two of the past four quarters in negative GDP growth.

    Auto sales are down in China and India.

    • Last I read home prices are still falling in Australia due to the Chinese not buying anything. Cutting interest rates won’t bring the Chinese back.

    • Wolf Richter says:

      David Hall,

      The Australian government moved heaven and earth to get home prices to bounce, including loosening restrictions on bank lending. The central bank cut rates, as you said. And there is enormous media hype about the bounce in home prices. So here is your “bounce” through July in Sydney. Melbourne looks similar:

      • Iamafan says:

        Nice graph of the greater fool theory

      • Nothing falls in a straight line. Even with negative interest rates in Australia the Chinese are not buying. The Chinese only buy when prices skyrocket. Without Chinese buyers home prices will fall to reflect the locals’ salary.

        • Brent in Toronto says:

          can’t happen soon enough for Australia and Canada’s big cities.

      • Auld Kodjer says:

        With all the elasticity of a deceased moggy

      • d says:

        Thank you, saved me the job, you always do it far to gently.

        That chart is not even 15 % down so not even a full correction yet.

        That looks a lot more like something head into a double dip than stabilizing on a slow up movement.

  18. Dave K. says:

    Sounds like a HORRIBLE idea, let’s let everyone else prove it so, and not make a mistake!

  19. Frank Smith says:

    Jyske bank in Denmark already offers negative interest rate mortgages, the monthly repayments remain the same but the capital decreases and the term shortens, the bank quite literally pays you to take out a mortage

    • Petunia says:

      The depositors are paying down the mortgage, not the bank. The depositors are also funding the operating costs of the bank. This is what NIRP really does, it subsidizes failing banks.

    • Volvo P1800 says:

      Through the looking glass weird.

      Makes me think of Jenny Holzer: “Everything you know is wrong.”

    • JMiller says:

      Actually you also have to include the fees and other costs that are charged when you get a mortgage. I believe in the U.S. it is typically around 2-5% of the loan amount. That Denmark bank, like all banks, is charging you something to get that low rate mortgage. Also most banks require that you have very good credit to get the advertised low rate. Also that Denmark bank says that you can borrow a maximum loan-to-value of 70%. This means you need 30% down. And the -0.5% mortgage is only for a 10 year mortgage from what I read

    • Em says:

      If it’s so then buying RE in Denmark would be a good move, eh?

  20. Hkaan says:

    What if….this insanely mad driving of rates lower is made deliberately. That makes (for me) pieces of the puzzle match.

    What if…this madness isn’t a coincidence of bad combined circumstances but rather ….long term planning.

    • Unamused says:

      long term planning.

      It was long-term planning when there was still a long term. Now it’s short-term planning.

      • Unamused says:

        Q: If money is so cheap, why can’t it be used to solve the problem?

        A: Because the problem is bigger than cheap money. Besides, cheap money makes the problem worse.

        You might think that if Negative IRP is good, then more negative IRP is better, but that is not the case. Falling rates can maintain the illusion of prosperity short-term but cannot make the illusion a reality. Worse, the illusion can only be maintained if rates continue to fall, which only kicks the can down the road while making the road shorter.

    • Brant Lee says:

      You think? Some diabolical scheme to rob the peons of their assets? Not with the fine folk politicians, corporations and banks that are in place now, by diddly.

  21. economicminor says:

    Follow the money!

    Who is benefiting from this?

    Is it those who have money in assets including the stock market? Do they really benefit from prices going up? Not unless they can sell at a top and buy back in at a low. And some assets, such as commodities have fallen hard already due to lack of demand. With overcapacity in many areas, how can assets generate more income?

    Yet to me this seems like an end to this game as negative interest rates implies at least to me a deflationary cycle.

    So how does someone actually benefit from deflation?

    Follow the money ! Who wins with this seemingly stupid strategy and how? Or has those in the FED actually lost their ability to think rationally?

  22. Max Power says:

    The ECB just doesn’t get it.

    The more negative they go with interest rates the more they zombify their economy by facilitating the continued existence of un-economic enterprises – which in turn leads to weak economic growth.

    They THINK there is no cost to negative rates but there is.

    They cannot see what is in plain sight.

  23. GSH says:

    The real issue is that sovereign debts are now at levels that countries can no longer service their debts at “normal” interest rates. That is the reason the ECB, Japan and now the US suppress interest rates. You better get used to NIRP/ZIRP.

    • DawnsEarlyLight says:

      ( ( )
      \ =\
      –\- -\
      (—-) ) ( \—===
      (—-) ) –
      (—-) )
      (—-) ) –/—===

      Thumbs Up!

      Definitely a big part of the horrible decision making!

  24. California Bob says:

    But! But! But! .. Cramer is screaming ‘Buy! Buy! Buy!’ on banks:

  25. NIRP is really a government bond problem which is offset with currency devaluation. Forex allows us to believe the loss in currency value is not real. In the rush to overlay the problem with a universal currency replacement there is the IMF and SDR, which is not a consumer solution, and there is Bitcoin, which is, and Blockchain which is not, and Gold which is being traded through all of the above. When the currency devaluation problem is solved nations will move out of currency and into these, or the other way around. Currencies which are most compromised will get the least upgrade. If you study the SDR criteria you will see how they making these valuations. Which is why China will float their currency, and add to their Gold reserves. The point of NIRP is to stabilize the currency which gives the nation a better rate of transfer. Europe is most highly rated, US midtier, moving down, while China is moving up. The EM is generally outside SDR, but open to access on crypto. IMF bailed out Arg 1000% of their SDR credits, so La Garde, who now takes over for Draghi, might give these EMs some benefit including the Latin Eurozone, and Greece. If the incumbent is reelected in 2020 the US will probably drop a few more notches.

  26. Stakhanov says:

    You know who had NIRP forever? The USSR.
    Nationalizing risk, and the large enterprises, at the expense of everyone else. That went well..

  27. c1ue says:

    I don’t see ZIRP in the US.
    The EU can get away with it because EU member nations largely have very strong social nets, including for seniors. Interest rates don’t matter nearly as much vs. seniors in the US – who rely on interest on savings and Social Security COLA increases to live on.
    The EU also has the Bundesbank up its butt like a stick. Germany benefits from low interest rates. PIIGS don’t mind low interest rates. Low interest rates are a downward pressure on the euro, which Germany likes but the PIIGS don’t, so much.

    • Iamafan says:

      Ha ha ha. If all the RESERVE CURRENCIES are negative, then all hell will break lose. Gold will be confiscated, too, to make the Ponzi scheme work.
      The USD has to be the cleanest dirty shirt and therefore it will have to be the most positive (or least negative) of the reserves. Besides, our banks are alive because of Interest of Reserves. With NIRP what will IOER be?
      Exorbitant Privilege x whatever.

      • Petunia says:

        NIRP will replace IOER. What NIRP really does is fund the operation of the banks. With NIRP they don’t have to worry about making a profit, they take the profit out of the depositor’s accounts. Instead of the fed paying the banks not to lend, they will allow them to steal your deposits instead. The “fee” will go to operations, profit, and funding borrowers.

        • Iamafan says:

          I removed all my money except 2-3 times monthly expenses from the bank and put all my excess liquidity in laddered Treasuries.

          I hope to reduce my bank balance even more and use Treasury as my savings account. If only the Fed’s real time payment accept individual account, I’ll move there. I hate my bank.

          Meantime I understand the what the Treasury is doing to me. But I am not a gold fan. Neither am I a Wall Street fan. Considering I live in the NY-CT border where many Wall Streeters live, I’m deaf to their propaganda.

        • Euro banks have had NIRP for a while and the stocks in their banking index are in far worse shape that US banks.

  28. akiddy111 says:

    The summer sell off.. as lame as it was.. may even be over.

    Our leader wants a fast 100 cut PLUS QE. Powell will probably meet him in the middle and do a 50 cut and put out some chatter of not ruling out QE “if conditions weaken”.

    All is good. The 0.1% are firmly in charge.

    And for any young people out there, invest early in your careers and invest often. Ignore the bulls and the bears.

    • medial axis says:

      If I were young I’d be investing but not in the current system, why would you? I’d be following the advice of Buckminster Fuller and be investing my time and effort in building a new system. Many of the young are already doing so but not where mainstream is looking, yet. It’s somewhat ironic that fiat money world wide is being printed to oblivion in the hopes it’ll be invested (in what I ask?) and so boost economies. There is now the first whispers, emanating from the incumbent, that perhaps capitalism isn’t all it’s cracked up to be. Hah, they are so far behind the curve they cannot see the future.

      • HC says:

        Most young people with money are already leveraged into real estate. Those that are left are broke. Having money in non protected financial interests is guaranteed to end in tears eventually. The constant increases in asset prices are unsustainable regardless of interest rates. Central Banks would do well to increase interest rates but they seem determined to not learn from history and will do it too late. We will have a worse recession as a result. Socialism is certainly not the answer, we just need braver actions in the current democracy serving the many.

  29. RoundAbout says:

    Kind of cynically figure the last sell off was to capture all the excess calls from people anticipating the rate cut. Now that option expiration happened Friday, the market can rise again and or not be as short term manipulated.

    Trump promoting QE is very disappointing. I believe the FED blame is an act — it’s a preemptive blame game when the market goes south which it has to at some point. Even if the FED cuts rates its only 2.5% there is not going to be as much potency as before.

    Negative rates just seems like politicians creating the appearance of a normal economy when its all burning down. Move along nothing wrong here slapstick.

    • maxergos says:

      I think Trump is trying to make the point that the fed is political, and either clueless or another unelected body controlled by the deep state thats utilized to gut the middle class. They cant win, regardless of what they do and going to zirp or nirp allows Trump to push for some sort of gold backing in order to rein in the banksters. I’m hoping its more 87D chess by the master troller.

  30. SocalJim says:

    As the election draws closer, politics will cause more shaking in the markets. This time, we will see far more volatility than ever before. We will have the Democrats yelling “Recession, Recession, Recession”, which will scare the markets … because the market knows if that fake news works, we will get a slowdown and a business unfriendly Democrat in the white house. Then, we will have the current president fighting back with his own “Boom, Boom, Boom” message … he will overstate the strength of the economy. With both sides slinging the propaganda, and since this president will fight fire with fire, the markets will “Shake, Shake, Shake”. The Fed will get too worried about the situation, and will get “Easy, Easy, Easy”. This will be a big money making opportunity if you don’t get sucked into the propaganda … too many people get sucked in.

    • Dave k. says:

      SocalJim….kinda like we are already seeing now. Name one country who has a better economy today than the US? I can’t. A lot of these recession fears are from people just trying to get Trump out office.

    • Just Some Random Guy says:

      We will have the Democrats yelling “Recession, Recession, Recession”,


      Will have? They’ve been screaming it sine the day Trump was elected. Their entire message has been hey there voter, ignore your record high income, record high home price and record low unemployment all around you. The economy is really in a recession. Trust us!! And sadly a lot of people go uhm yeah I guess you’re right Bernie we’re in a depression dude!!

  31. JoePlateau says:

    In the Netherlands you get around 0.1-0.2 % interest on a savings account. You pay around 1.5% for a 10yrs mortgage. Housing market seems to cool down a bit, perhaps because inflation is eating away disposable income, thus lowering maximum mortgage sums.

    If inflation stays the same, lowering the savings rate below 0%, will cause a bankrun.

  32. WSKJ says:

    The central bankers find that they have dug themselves into a hole, and they keep digging.

    Thx, Wolf, for spelling out again that the CB policies- NIRPs, ZIRPs, and VLIRPs with the accompanying actions- QEs, etc.- have inspired an economic and financial superstructure which, many of us believe, will collapse catastrophically. (Guys, you forgot to timber the shaft.)

    The only question being the extent to which the CBs cling to the idea that they have created a genius new banking tool- the once and future NIRP.

    Just a wild guess as to timing of the collapse: it will follow closely on the Nobel Prize for economics being conferred on a Central Banker for initiating a NIRP.

  33. eg says:

    So — when are you going to figure out that all of this monetary policy is a sideshow compared to fiscal policy?

    Once the former is wholly discredited, the latter will have its day in the sun once more.

    Next up, capital controls and credit guidance …

    • NBay says:

      Hey, eg, I figured that out a long time ago, even with a total lack of economics training! That lack of training also allows me to define a Depression as simply too much money in too few hands. So, how about some fiscal policy before the peasants all start joining the Communist party like during the last one? A Green New Deal sounds good for the economy and the planet. It’s not like there is anything to lose, as was recently said to try to pick up more of the black vote.

  34. Just Some Random Guy says:

    Everyone and their brother is convinced a recession is here. Which means there is no recession anywhere on the horizon. Recessions and market crashes happen when nobody thinks they’ll happen. Buy when everyone is selling and sell when everyone is buying. Everyone is buying recession right now.

    • Wolf Richter says:

      Service sales, labor market, retail sales and consumer spending overall say there’s no recession in the US — not even anywhere near. What’s weak is manufacturing and industrial production, but that’s a small part of the economy. But the US doesn’t have negative interest rates either (which is what this podcast is about).

      Check out my retail report, focused on ecommerce, coming in a couple of hours. Ecommerce is BOOOOOMING.

      • raxadian says:

        As long as Europe and Japan keep their negative rates then investors will take cheap debt in Europe and use it to buy USA bonds that actually give them money.


        • Wolf Richter says:

          The problem is currency risk. And hedging against it is now very expensive. So you might make 2% more by investing in US Treasuries but you might lose 3% on exchange rate fluctuations, if you’re un-hedged. So you make two bets: one on yield and the other on a currency.

    • Iamafan says:

      How can we be having a recession when in the last 2 years I made a decent income in Interest Rates? Meantime, stocks and bonds are floating on air. Those candidates are hoping, period.

  35. Gene says:

    I think we’ll see the Fed adopting NIRP within the next one or two years. We’re already hearing talk of one or more 50 basis point cuts in the Fed rate. From such a low level, it wouldn’t take long to get to negative territory. Sometime after that, to prevent savers from socking away money in safety deposit boxes, there will be currency with expiration dates. You’ll have to spend it, or be forced to accept lower value currency when you turn it in. It would be tantamount to default.
    And there’s talk of 50 and a 100 year bonds, and further fiscal stimulus. One would think there would be enough fiscal stimulus with a federal budget of $4T, but evidently there’s not.
    I remember back in my undergraduate days, in the late ’60s/early ’70s, being required to read a book by Arthur Okun, a respected economic adviser to LBJ. He wrote of “fine tuning” the economy, to get the desired results with measured, moderate steps. We’ve traveled a long way into crazy land since then.

    • SocalJim says:

      Super long ( 50/100 yr ) bonds mean the smart people in the govt think we are at a secular and cyclic low in the yield curve and they want to take advantage of that. That is the message. Because if they thought rates would go lower, they would offer lower duration issues. That is the story … the govt is bullish on GDP ( or should I say bond market bears ).

  36. ooe says:

    You have it backwards negative rates are a sign of a bad economy. Investors do not see anything to invents in so they rather give the money to govt. the govt needs use this golden opportunity to deficit spend and stimulate the economy.

  37. Nels Nelson says:

    Banks create private credit money and purchasing power that did not previously exist. The majority of this money is lent for real estate which are usually existing assets and have no direct stimulus on nominal demand. The only demand this may stimulate is through the wealth effect but it is usually not proportional to the credit created. The old belief that banks takes deposits from savers and lends to borrowers lives only in “It’s a Wonderful Life”.

    The Federal Reserve HQ is called the Marriner Eccles Building, named after the chairman of the Federal Reserve from 1934-1948. The following is his famous answer given during a congressional hearing. He was speaking about what he did as a banker in Utah:

    Congressman Patman: “How did you get the money to buy those two billion dollars worth of Government securities in 1933?”
    Governor Eccles: “Out of the right to issue credit money.”
    Patman: “And there is nothing behind it, is there, except our Government’s credit?”
    Eccles: “That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.”
    Congressman Fletcher: “Chairman Eccles, when do you think there is a possibility of returning to a free and open market, instead of this pegged and artificially controlled financial market we now have?”
    Governor Eccles: “Never, not in your lifetime or mine.”

    A NIRP is an act of desperation. This act is essentially an ultra loose monetary policy which in a deflationary trap does not work through the normal transmission mechanism and stimulate investment. It is necessary because of the loose fiscal policy i.e. large public deficits. Ultra loose monetary policy is needed to lubricate the loose fiscal policy to prevent crowding out, the so-called Ricardian Equivalence.

    • eg says:

      I’m surprised that someone who demonstrates as much understanding of banking as you do still believes in the “crowding out” canard.

      • Nels Nelson says:

        I don’t believe in “crowding out” or Ricardian Equivalence and said it “tongue-in-cheek” as it is one of the many stupid economic ideas that are immune to empirical refutation while still being useful to specific constituencies. Another one of my favorites is expansionary fiscal contraction better known as “rational expectations”.

  38. George says:

    Having never lived through a currency collapse few will recognize one. QE was always viewed as a one way road so recently emphasized by CB capitulation and recent calls for the theft to continue by the many ignorant.

    As wolf states, QE, initially a temporary emergency response to systemic failure circa 2007, continues by stealth through bank reserves to this day. (Reserves hardly existed before 08).

    Cue the BIS who in June 2017 basically told CB’s of the world to normalize interest rates or suffer the very consequences we begin to experience. Papers read from the BIS include fits of doubt that interest rate manipulations are hardly effective at the lower bound. This could be interpreted many ways but what I gather it is becoming less opaque that fiats should be tossed.

    And to wax on about interest rates or more factually the control of the cost of fiat, after the Yellen Fed raised five .25 BPS to a lofty 1.5% FFR, Powell pushed it four times to a 2.5, apparently knocking the eyes out of the people who chart this stuff. Hence the .25 BPS reversal to 2.25% FFR so as to ease up on those reserve requirement don’t you know. It seems he now is hoisted by one’s own petard for a 3/4 % attempt to comply.

    Such a sorry state prompted Bernanke to state we will never see normal interest rates in our lifetime now coming to fruition. So yes, I’d say done and even though I agree with some of you a return to pre 2007 levels would make common sense because it is about the only thing they haven’t tried, the right thing doesn’t get done.

  39. Kraig says:

    >Second….Promote stable prices.

    This requires either a return to the gold standard and gold accounting,or setting minimum wage and benefits in real terms to account for annual inflation.

    Income has remained stable while inflation has increaded expenses by 50% twice ovwr the last 50 years.

  40. Doityourself says:

    Wolf – thank you for what you do!

  41. Brent in Toronto says:

    I should stop reading wolfstreet and comments before bed — it keeps me up at night!

  42. Jack Santos says:

    I would hate to be a banker these days. It can be risky to them.

Comments are closed.