It has long been believed that when it comes to interest rates, zero is as low as you can go. Who would choose to keep their money in the bank if they had to pay for the privilege?
But for the people who control the world's money, this idea has recently been thrown out of the window. Many central banks have pushed their rates into negative territory and yet the financial system has still to come to an abrupt end.
It is a discovery that flips on its head the conventional idea of how authorities could respond to future economic crises; and for central bankers, this has come as a relief.
Central bank policymakers had believed they had run out of room to support their respective economies, with their interest rates held close to the floor.
Traditionally, it was thought that if you wanted to boost the economy, the central bank would reduce its interest rates. Normally, the rates offered on savings accounts would follow, and people would choose to spend more, and save less.
But there's a limit, what economists called the "zero lower bound". Cut rates too deeply, and savers would end up facing negative returns. In that case, this could encourage people to take their savings out of the bank and hoard them in cash. This could slow, rather than boost, the economy.
What is happening now should not -- according to conventional thinking -- be possible.
As central bank rates have turned negative, the rates offered on bank deposits have followed. Yet rather than stuffing cash under mattresses, people have left their money in the bank or spent it.
Nowhere is the experiment with negative rates more obvious than among Nordic central banks. Sweden -- the first to dabble with negative rates -- is perhaps the prime candidate for such experimentation.
The country already has high savings rates, the third highest in the developed world according to the OECD and, despite growing at healthy rates, there appears to be plenty of slack left in the economy to prevent an overheat.
Unemployment is unusually high for an advanced economy at more than 7pc, still well above its pre-crisis levels of sub-6pc. Crucially, the Riksbank's mandate suggests that such a radical experiment is necessary. Policymakers have battled with deflation since late 2012, and with inflation at minus 0.2pc in August, it remains well below the central bank's 2pc target.
To a great extent, the Riksbank's hand has been forced by the plight of the eurozone. A tepid recovery in the currency union has required the European Central Bank (ECB) to bring in ever-looser policy.
As the ECB's actions have weakened the euro against Sweden's krona, the cost of importing goods into Sweden has fallen, and weighed down on inflation. The Riksbank has had to cut its own rates in response in an attempt to avoid deep deflation.
Sweden's flexible approach to monetary policy has won it the plaudits of leading credit ratings agency. Standard and Poor's recently reaffirmed the country's triple AAA sovereign rating, remarking on the benefits it derives from "ample monetary policy flexibility".
Noting that the Riksbank had introduced both negative interest rates and quantitative easing, S&P said that "should inflation rates stay low or the krona appreciate materially, the central bank could lower the repo rate further".
Many City analysts believe that the Riksbank will continue cutting, reducing its key interest rate to minus 0.5pc by the end of the year. Switzerland's is already deeper still, at minus 0.75pc, while Denmark and the eurozone have joined them as members of the negative zone.
What was once thought impossible now seems something that could come to the UK in the years to come. And even in the US, which is thought to be just months away from an interest rate rise, the idea of negative interest rates has gained attention.
At the most recent meeting of the Federal Open Market Committee (FOMC), which decides US interest rates, one unnamed member said that they expected negative policy rates at the end of this year and next.
But can policymakers keep at this forever? Even if turns out that the lower bound was not negative, economists still believe that one exists.
Attempts to estimate the unknown vary, but the fees charged by credit companies give some indication as to how strongly we prefer to use cash. These can be as low as minus 3pc according to Barclays, indicating that central bankers have much more room to slash rates.
Pension funds might be among the first to abandon banks if things get too painful, because of what in effect can look like a tax on holding money.
One solution is to give savers nowhere else to go. This idea was floated by the Bank of England's chief economist in recent weeks, who made the case that sub-zero rates will be needed in the near future.
Andy Haldane, a member of the Monetary Policy Committee (MPC), the UK's equivalent of the FOMC suggested that to achieve properly negative rates, the abolition of cash itself might be necessary.
This is one reason why negative rates have been used in Nordic economies, where societies are already close to cashless. Even sellers of Sweden's version of the Big Issue magazine - Situation Stockholm - are able to accept payment via debit or credit card.
For the immediate future, the British obsession with cash appears to be intensifying. The Bank of England has said that demand for banknotes and coins outstrips total spending in the economy.
Some of like to hoard it for peace of mind, while many of us hold it for day to day transactions. And much of it is held abroad, often in bureaux de change.
There are other - perhaps more sinister - motives to prefer non-electronic money. Unlike the money stored on spreadsheets, cash is almost completely untraceable. For those who value their privacy, or who deal in prohibited goods and services, there's no beating it.
Last week, Charles Goodhart, a former MPC member, said that Swiss and ECB central bankers had been "absolutely shameless" in continuing to issue high denomination notes, printing 1,000 Swiss franc and 500 euro bills.
These high face values notes "are there to finance the drug deals", Mr Goodhart said at the annual Money, Macro and Finance Conference in London. Sir Charles Bean, also a former deputy governor at the Bank of England, echoed Mr Goodhart's concerns.
He said that was "all in favour of getting rid of big-denomination notes, which are used in the black economy". Such a move could increase the cost of holding cash, pushing the lower bound on policy rates even lower. Sushil Wadhwani, a former MPC member, said: "We should make it much more expensive to hold cash."
No politician is likely to prohibit cash entirely, at least not until it has already all but disappeared from day to day life. Concerns about surveillance and the power of the state are likely to grow, as electronic money is completely traceable.
"Cash is useful for small transactions, and until it disappears naturally, I would be loathe to say let's outlaw it," says Sir Charles.
#2
These high face values notes "are there to finance the drug deals", Mr Goodhart said ... Sir Charles Bean, also a former deputy governor at the Bank of England, echoed Mr Goodhart's concerns.
He said that was "all in favour of getting rid of big-denomination notes, which are used in the black economy".
Look for the MSM to start concern trolling over how cash only serves criminality.
First, a trickle, then a stream, then a flood of stories.
"Why do need that cash, citizen? Isn't your digital state allowance enough for you, hmm?"
#4
The problem is it works like a pyramid scheme. Only the countries that start this benefit and you get a diminishing return for every country that continues until the whole system falls apart as people start keeping their money.
Personally if a bank started charging me on my savings I would pull it out and work only with paper money or tradable goods.
#5
How do you keep your money safe? I'd pay a bit for them to hold onto it so I could leave my house and not have to worry about it. If everyone had their savings at home, burglaries would get out of control. A state of semi-anarchy would ensue.
Heartiest congratulations for this accomplishment in the midst of all that Boko Haram nonsense.
[AnNahar] Nigeria on Saturday celebrated the announcement by the U.N. health agency that polio ...Poliomyelitis is a disease caused by infection with the poliovirus. Between 1840 and the 1950s, polio was a worldwide epidemic. Since the development of polio vaccines the disease has been largely wiped out in the civilized world. However, since the vaccine is known to make Moslem pee-pees shrink and renders females sterile, bookish, and unsubmissive it is not widely used by the turban and automatic weapons set... is no longer endemic in the country. Polio which can cause life-long paralysis can be prevented with a simple vaccination.
Polio is no longer endemic in Nigeria, the World Health Organization said late Friday, leaving only Pakistain and its war-battered neighbor Afghanistan in the list of countries where the disease is prevalent.
"It's a great moment for Nigeria," Dr. Tunji Funsho, chairman of the Rotary International's Polio Campaign in Nigeria, told The News Agency that Dare Not be Named. "We should celebrate but with a caveat that we should not let our guard down." He attributed the success to teamwork between government and non-governmental health organizations.
The main goal now is to increase the gains made and ensure Nigeria has no new polio cases in the next two years so that the WHO can declare Nigeria a polio-free country, Dr. Funsho said. "Until that happens we are not out of the woods yet." he said.
Once stigmatized as the world's polio epicenter, Nigeria in late July celebrated its first year with no reported case of the crippling disease, having overcome obstacles ranging from Islamic murderous Moslems who assassinated vaccinators to rumors the vaccine was a plot to sterilize Moslems.
Just 20 years ago this West African nation was recording 1,000 polio cases a year -- the highest in the world. The last recorded case of a child paralyzed by the wild polio virus endemic in Nigeria's impoverished and mainly Moslem north was on July 24, 2014.
WHO said Nigeria and Africa as a whole are now closer to being certified polio-free.
The agency warned polio remains endemic in Pakistain and Afghanistan and that as long as the disease exists anywhere "it's a threat to children everywhere."
[Aviationist] An Ilyushin Il-76 buzzing some people at an airbase in Ukraine.
A few months ago we published a video showing Ukrainian Air Force Su-25 Frogfoot bombers flying at treetop altitude over Melitopol airbase, in southeastern Ukraine.
The Frogfoot jets could be seen buzzing the tower and flying low over parked Il-76 cargo planes. Well, here's a new video showing the opposite: a Candid making a low pass over parked Su-25s.
As already commented when we posted the Su-25 footage, although the Ukrainian pilots may have to fly at very low-level (where they can be particularly vulnerable to MANPADS as those in the hands of pro-Russia separatists in eastern Ukraine) such low passes seems to be a bit too risky....
[American Thinker] Families across America have a pressing question for Chinese leader Xi Jinping, now visiting the U.S. It's not among President Obama's public priorities for this trip, such as climate change, trade and cybersecurity. Nor is it likely to be asked by the news media or the Secretary General of the United Nations during Xi's visit there.
The question: What did Russia China do with the Americans it captured during the Korean and Cold Wars but never returned? The fate of these husbands, fathers, sons and brothers continues to haunt their loved ones, who are frustrated at Beijing for its long stonewalling and Washington for its failure to press the issue. A special DoD intelligence cell should be committed to this research effort.
We can now report that a celebrated 2008 U.S.-China agreement to open Chinese military archives has failed to resolve the case of even a single U.S. POW, according to the Pentagon. The Chinese "cite classification issues that prevent them" from releasing information on American POWs, a spokesperson admitted to us late last week.
Take the case of Richard "Dick" Desautels, a handsome, blue-eyed nineteen-year-old from a Vermont dairy farm who was imprisoned by China and never returned. After decades of claiming he had "escaped" in 1953 from a Chinese-run prison camp in North Korea, Beijing in 2003 finally admitted it had actually abducted Desautels to China that year. According to their new story, Desautels died soon after from a sudden "mental illness" and his body was misplaced. Asked for proof of his fate, Beijing refuses to release the files it admits having on this missing American hero. Sadly, the Chinese are not the only ones obfuscating facts regarding the status of American POW's.
#4
In comparison to the Senate Launch System, Elon Musk has been designing Mars Colony Transport system with absolutely huge natural gas and oxygen powered rockets to take PAYING colonists to Mars for $500K each one way.
[Hot Air] Researchers at the National Institutes of Health (NIH) have developed a system that can predict the "psychological status" of users with smartphones and hope to private companies to bring the invention to the market.
The technology appeared on a list of NIH inventions published in the Federal Register that are now available to be licensed by private companies. The government allows companies to license inventions resulting from federal research in order to expedite their arrival on the marketplace.
The system uses smartphones to ask people how they are doing mentally during the day and based on the results can "deliver an automated intervention" if necessary.
"The NIH inventors have developed a mobile health technology to monitor and predict a user's psychological status and to deliver an automated intervention when needed," according to the notice published Wednesday. "The technology uses smartphones to monitor the user's location and ask questions about psychological status throughout the day."
"Continuously collected ambulatory psychological data are fused with data on location and responses to questions," the NIH said. "The mobile data are combined with geospatial risk maps to quantify exposure to risk and predict a future psychological state. The future predictions are used to warn the user when he or she is at especially high risk of experiencing a negative event that might lead to an unwanted outcome (e.g., lapse to drug use in a recovering addict)."
The NIH said the technology has potential commercial applications for "real-time behavior monitoring" and "therapeutic delivery of an intervention via a mobile device."
#3
We already know the outcome, just show us the process that demonstrates 47 percent of the population fails to meet the 'sane' standard of the Modern Soviet Tranformative American man citizen.
The U.S. Air Force has gotten pretty lax about defending its air bases and parked warplanes from aerial bombardment. But that wasn't always the case, as RAND analyst Alan Vick explains in a new study. "In the late 1980s, the USAF developed inflatable decoy aircraft like the F-16 shown in [the photo below], but the Cold War ended before they were procured in numbers."
The Air Force would have stationed the balloon F-16s around its airfields in Europe, hoping to draw Soviet attacks away from actual F-16s.
Inflatable decoys have a long history. They were especially popular during World War II. The Allies even propped up an entire inflatable army in England to distract the Germans from the real Normandy landing preparations.
#2
Fill it with helium and power/control it with a drone and then let the video slip out. It'd be awesome as the Russians and others tried to figure out how we made an F-16 VSTOL with our new anti-grav tech.
#4
I heard that story. I think it was the Germans in the Netherlands and the Brits dropped the fake bomb. I'm not sure it was all inflatable but they created a fake base. How does stuff like that not find its way into movies?
POLK COUNTY, Ga. - A trio of students has been suspended from school after one of them brought a Confederate battle flag to campus.
Officials said the disruption occurred Wednesday morning at Rockmart High School in Polk County when a 10th grade boy arrived with a Confederate battle flag attached to his backpack.
"He got dropped off out of his truck and came down the sidewalk just like any other student does," said Principal Wesley Cupp.
He said the sophomore, who is white, And therefor automatically assumed to be racist...
then walked through the cafeteria before school started onto the courtyard with the Confederate battle flag strapped to his backpack. That's where he was confronted by two African-American students.
"They wanted to confront him about what he had on his back pack. What did they say? Hey man why you doing that," said Cupp.
Principal Cupp also said shoving and exchange of words among the students was minimal because staff broke it up within minutes. He said no weapons were found. But later in the morning, the school was put through a lockdown drill with students kept in class after rumors of other students bringing Confederate battle flags surfaced. Should have just set off a hoax bomb in English class like Ahmed then there wouldn't have been a problem.
"We just did that as a precautionary situation to help maintain and control what could have been a bad situation," said Cupp.
He said all three students involved were suspended for the disruption which had nothing to do with Freedom of Speech.
"When you become a distraction where students can't learn because of a distraction then that needs to be removed," said Cupp. And of course all your handwaving and hysterics made absolute sure it was a distraction.
... more at the link
#4
Contrast the media reaction to this with the reaction to Ahmed bringing a de-facto Hoax bomb to school and 'setting it off' in English class.
Yes I think he (or probably his activist father) deliberately designed and built that 'alarm clock' to look like a bomb to the untrained eye.
Who the hell would build an alarm clock into a briefcase? A shoebox perhaps but a briefcase?
[The Telegraph] Iran is trying to capitalise on a period of turbulent race relations in the United States by inviting families of black men fatally shot by police to attend a conference on discrimination in Tehran. Not to be outdone by Texas high school student Ahmed Mohamed's recent invitation to the White House.
Relatives of at least one black American shot dead by police officers have said they will accept an invitation to the "Blacks of America" conference planned for later this year. Kawanza Jamal Beaty, 23, was shot dead in Newport News, Virginia on July 4. His stepfather Clyde Dargan, and mother Melissa Dargan, this week launched a $10 million (ÂŁ6.5 million) claim against police.
They rejected suggestions that they could face a backlash for visiting Iran.
Mr Dargan told The Telegraph: "I'm interested in coming to the conference. I want to bring awareness. It's just to bring awareness to the world about what's going on in America. This is an epidemic and cops are not getting prosecuted. A serious effort would involve the creation of an Iranian 'New Liberia.'
A multi-volume chronology and reference guide set detailing three years of the Mexican Drug War between 2010 and 2012.
Rantburg.com and borderlandbeat.com correspondent and author Chris Covert presents his first non-fiction work detailing
the drug and gang related violence in Mexico.
Chris gives us Mexican press dispatches of drug and gang war violence
over three years, presented in a multi volume set intended to chronicle the death, violence and mayhem which has
dominated Mexico for six years.
Rantburg was assembled from recycled algorithms in the United States of America. No
trees were destroyed in the production of this weblog. We did hurt some, though. Sorry.
