Negative interest rates idea floated by Bank's Paul Tucker

[Little John]

Bugger me, if the government and the BoE were so desperate to get people to spend money into the economy and get it circulating, why the hell didn't they simply put £10,000 of QEd money into everyone's bank accounts with a time limit on the money such that if it wasn't spent within a given time period, it would expire. However, having been spent once, it would no longer be subject to a time expiry.

Oh, wait, I remember why. It's because there would have been no opportunity for profits for the money lenders that way..

[emordnilap]

Bugger me, if the government and the BoE were so desperate to get people to spend money into the economy and get it circulating, why the hell didn't they simply put £10,000 of QEd money into everyone's bank accounts with a time limit on the money such that if it wasn't spent within a given time period, it would expire. However, having been spent once, it would no longer be subject to a time expiry.

Oh, wait, I remember why. It's because there would have been no opportunity for profits for the money lenders that way..

And it's really too sensible, Steve. Stop it.

[UndercoverElephant]

http://marketshadows.com/2013/02/24/gol ... l-edition/

1) The loan-to-deposit ratio for the top commercial banks has been falling – i.e. loans relative to deposits are down. This is because deposits are up. Banks are still lending.

2) Deposits are growing too fast for the economy. With its quantitative easing (QE), the Fed is directly responsible. It’s blowing a deposit bubble that will result in capital misallocation.

3) Bloomberg (accurately): “total deposits also reached a five-year peak of $5.04 trillion, according to the data, leaving hundreds of billions of dollars of potential fuel unused.”

4) The Fed has been buying $115-$120 billion of MBS and Treasuries from the Primary Dealers each month (QE). It buys those securities by crediting the dealers’ accounts at the Fed…. Abracadabra- $2 billion to the account of Goldman Sachs!

5) The money encourages banks and those with access to easy credit to “invest” (speculate) in things that aren’t needed, such as commodities and low-yielding bonds. This spawns bubbles, which eventually crash.

6) The Fed wants inflation, higher stock prices, and lower long-term yields. It is trying to achieve that by buying Treasuries and MBS from Primary Dealers and funneling immense amounts of cash to their accounts, driving the loan-to-deposit ratio even lower.

7) The Fed gets its way for extended periods, until something forces it to reverse policy. Reversing is usually due to some form of inflation.

Financial asset bubbles are a manifestation of inflation. Recently, the biggest asset bubble has been in bonds. The bubble in stocks is at an earlier stage.

9) Bernanke is in denial about the costs of financial repression, or “ZIRP Bernankecide” (ZERO INTEREST RATES). Retirees have been driven to the poorhouse. Conservatively managed pension funds can’t generate adequate returns. Pensioner incomes will be cut. Insurers are being squeezed. ZIRP imposes real, painful, and immoral economic costs. Low interest rates are not a free lunch and do not benefit the whole economy.

10) The transfer of the wealth of middle class retirees by suppressing their rate of return on savings in order to liquefy and make the banks profitable is terrible for the economy, and public morals and mores.

11) The bull market will go on as long as the Fed ignores the hidden costs that its policies impose to the fabric of society. Eventually those costs will become too great to ignore.

12) If commodity prices bubble up again before consumer prices and wages rise, the Fed will be in a Catch 22. Rising input costs will pinch business profits. Consumers facing rising food and energy costs will cut back spending. Rising food prices could trigger political instability. This could lead to a vicious downward spiral.

13) QE will continue to drive stock prices higher until it ends. By stopping it, the Fed will deprive the dealers and their hedge fund clients of the fuel needed to keep stock prices up.

14) We will likely come to the brink again, have a market crash correcting some excesses, wash, rinse and repeat. If we do not take corrective action against those in power perpetrating massive financial frauds and making policy to benefit the powerful, we will slowly descend toward the dissolution of civil society.

That's where we are heading now. No overnight crash of the banking system, just more and more money-printing because they can't stop printing without precipitating the overnight crash. This continues until the pain being inflicted on "civil society" becomes so much that our systems of governance, law and order and international relations start to break down.