#negative rates

Trump’s Federal Reserve Pick Wants to Put Metal Chips in Cash to Track Every Dollar & Tax It

Trump’s Federal Reserve Pick Wants to Put Metal Chips in Cash to Track Every Dollar & Tax It By Matt Agorist

In the state’s relentless pursuit to scrutinize and control every citizen, including monitoring, tracking, and especially taxing their income, untraceable physical cash has long been a shield against such tyranny. However, thanks to Donald Trump’s nomination to the Federal Reserve Board…

time & time again, i find this as the most beautiful and relevant economics concept  ... 

can we go for negative rates ..? ... sure we can ... who cares ..? right ..! 

Little has been achieved nearly two years after the European Central Bank began charging banks interest on deposits. The policy sought to encourage banks to lend more, but in contrast has resulted in an increase in deposits by six-fold.

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Slowing Lending Activity

Banks are not to be blamed entirely for the slow pace of lending activity in the trading block. People are not borrowing money as expected as recession continues to cause shivers. Banks in the midst of restructuring after years of losses are also reluctant to increase their lending capacity.

The ECB has offered to pay banks interest on money they borrow from it. Even so, the offer is not expected to do the trick in triggering lending activity. Most banks in the region are not profitable enough to bolster their lending activities as the ECB would have wished.

Lending to non-financial firms and consumers has been on a downward trend for the past four years. Lending was down by 8.5% or €627 million in 2014 compared to 2012. The decline suggests that even though the ECB is providing banks with enough funds, the same might not be enough to bolster lending.

UBS Group AG Chairman Axel Weber believes stricter regulations have played a big role in banks shying away from increasing their lending capacity.

Negative Interest Rates Impact

Negative interest rates were designed to make it easier and affordable for consumers to borrow money from banks. However, the interest that banks pay people for depositing with them cannot go negative as the same could trigger a massive wave of withdrawal.

The situation has made it impossible for banks to attain their desired profit margins as they strive to reward savers with enticing interest rates to prevent them from having to keep their cash at home. Crimping of margins by negative interest rates is the main cause of poor performance in the banking sector. The same has also had a hand in lower lending activities.

Santiago Carbo-Valverde, a finance professor at Bangor University in the UK, believes banks may start charging interest on deposits should negative interest rates persist.

   Living in the era of negative interest rates                                By Kenny Simon

A new sub-zero interest rate environment has sparked panic among the global economy and given rise to new risks and opportunities

The world economy of today is akin to the weather, with its unpredictable surges and the gloomy days, and within the financial ecosphere, its own version of storms, hurricanes, floods and even earthquakes have all struck. Finance and nature do have one thing in common: when disaster strikes, it naturally boils down to the survival of the fittest.

Speaking of surviving the economic storm, it’s almost impossible to ignore assertions made by those in power about how their ideas could improve current conditions or prevent future calamities. Naturally, it’s difficult to determine whether their claims are based on facts or simply fallacies, and many are torn over whether they should believe.

U.S. life insurers are piling into the shadows of the corporate-bond market to boost income, even as rising demand reduces the extra yield they get paid to hold the debt. About $728 billion of debt known as private placements were held by insurers at the end of 2013, up from $678 billion two years earlier, according to Fitch Ratings.

Borrowers may choose private loans and bonds to limit financial disclosures and save administrative costs. While that contributes to the higher yields, it makes the debt harder to sell should an insurer need to exit a holding to pay claims or cut credit risk. “To the extent that you need to sell a security and liquidate it, there’s less ability to do that without impacting the price,” said Shachar Gonen, an analyst at Moody’s Investors Service.

Since 2008, New York Life has built a business to make its own loans, reducing its reliance on other firms that originate the debt. That’s helped maintain spreads, Malloy said.

The bank found that insurers saw holding less-liquid assets as among the best strategies for increasing returns. Insurers planned to boost allocations to private equity, commercial mortgages, real estate equity and mezzanine debt, Goldman Sachs said.

American International Group Inc. said in June that it had committed $1.5 billion to a venture with Oak Hill Capital Management that will lend to mid-sized companies. The business, called Varagon Capital Partners, will lend to companies with earnings of as much as $75 million before interest, tax, depreciation and amortization.

“There are other private debt sectors, especially in Europe, where the liquidity risk premium is still quite attractive,” Cecilia Reyes, the chief investment officer of Zurich Insurance Group AG, said in a phone interview. “That story of spread compression is there across all spreads, all risk premia, including liquidity risk.” With spreads declining for private bonds, the increase in demand is probably nearer to the end than the beginning, said Robert Derrick, co-head of the North American corporate finance group at insurer Prudential Financial Inc.’s private-lending unit. The challenge is that the extra yield for taking on risk is dropping across asset classes, said Alton Cogert, whose Strategic Asset Alliance advises insurers. “You don’t get a whole heck of a lot,” Cogert said.