President Donald Trump on Wednesday continued his attack on the Federal Reserve, tweeting that “The Federal Reserve should get our interest rates down to ZERO, or less.”
Interest rates of “zero or less” would be terrible for Americans. When the Federal Reserve sets interest rates those rates determine the interest rates for savings accounts and also cost of living adjustments for seniors on Social Security. When rates are lower than the rate of inflation, Americans with money in interest-bearing accounts are actually losing money. So interest rates set at zero would mean Americans are losing money by placing it in a savings account, money market or certificate of deposit.
Negative interest rates are worse. That would mean that not only are you losing money, you are actually paying the bank to hold your money. This is worse than hiding it under the mattress. At least there it’s only losing value to inflation.
Here are Trump’s tweets on negative interest rates:
….The USA should always be paying the the lowest rate. No Inflation! It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of “Boneheads.”
— Donald J. Trump (@realDonaldTrump) September 11, 2019
Chairman Alan Greenspan told CNBC’s “Squawk on the Street” that, with regard to negative interest rate policy, or NIRP, “You’re seeing it pretty much throughout the world. It’s only a matter of time before it’s more in the United States.”
NIRP is the latest in a string of stupid bankster tricks to resurrect comatose economies. It’s the zany idea that if they make it painful to put money in the government bank (where it would usually earn interest), the commercial banks will be forced to lend out their cash to the public and — voila! — the economy will be well again.
Never mind that, like ZIRP (zero interest rate policy) and QE (quantitative easing), NIRP isn’t doing what it was supposed to do in the countries employing it. Not only have the commercial bankers not taken the hint and withdrawn their money to spread around in the economy, they’re actually parking even more cash in the government banks.
Now you may think we’re safe from such nonsense here in the U.S. — not because our banksters are any smarter than those in the rest of the world (they aren’t) but because according to economists and Wall Street the American economy is hale and hearty. As if…
But if (when) the U.S. gets dragged down into recession along with the rest of the world, the Fed and Company may seriously consider looking at negative interest rates. Is President Trump really pushing us towards this? It’s hard to tell, but there are legal questions about whether the Fed even has the authority to do that under the Federal Reserve Act, and former chair Janet Yellen admitted in testimony before Congress that she wasn’t sure about the legality of such a move.
A Fed Staff Memo from Aug. 5, 2010, but released Jan. 29, 2016, said “There are several potentially substantial legal and practical constraints to implementing a negative IOER [interest on excess reserves] rate regime, some of which would be binding at any IOER rate below zero, even a rate just slightly below zero. Most notably, it is not at all clear that the Federal Reserve Act permits negative IOER rates, and more staff analysis would be needed to establish the Federal Reserve’s authority in this area.”
Translation: It’s not legal, but we’ll find a way around it.
The smart money is already catching on to the future of gold in a negative interest rate-infested world and is stocking up. Greenspan told MSNBC “that gold prices have been surging recently because people are looking for ‘hard’ assets they know are going to have value down the road as the population ages. Gold futures are up more than 21% in 2019 and are trading around levels not seen since 2013.”
We’re certainly no fans of the Fed. The Fed’s artificial manipulation of interest rates creates malinvestment and causes bubbles which burst and cause recessions. But the biggest bonehead here is Trump.
P.S. — You can still buy and invest in gold on the way up, if you can handle the swings. I have put my best advice on buying gold into my Ultimate “End of the Dollar” Defense Manual. Because gold will have wild swings as it eventually rises, and they will scare folks out of any bull market.
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