Sunday, December 07, 2014

David Stockman*: 
The Keynesian Toolbox Is Empty
TomWoodsTV interviews David Stockman* .. Stockman says the Keynesians have had their day in Japan & worldwide .. rails against Harvard University's Ken Rogoff on the abolition of physical cash to facilitate the further expansion of monetary policy - governments trying to implement negative nominal real interest rates to take wealth away from bank depositors to help pay down government debt .. it's financial repression .. 30 minutes

From Our Post This Morning:
The Deep In Debt Western World
Needs To Consider More
 Negative Interest Rate Schemes
[Cliff Note: As part of on-going financial repression to help pay down public debt, governments already have implemented negative interest rates through low nominal interest rates in an environment where the inflation rate is higher than the interest rate, but now negative nominal interest rates are being considered .. here is a piece which considers this, it proposes some ideas on how this could be implemented .. recall from our prior posts that negative interest rates are a mechanism for transferring your wealth to the government to help pay down rising government debt & deficits.]
"Interest rates can't go too far below zero because if they did, institutions and individuals will prefer to hold physical cash. This preference will cause problems. Banks will withdraw the money they have on deposit at the central bank, transferring it into cash. The consequences of this transfer for the interbank market, through which monetary policy is implemented, are uncertain but likely inimical. Moreover, if banks themselves start to offer negative interest rates to depositors, these depositors will also transfer to cash and banks will face a funding squeeze .. How do we get around this problem? Ken Rogoff of Harvard University has suggested completely abolishing physical currency .. Miles Kimball of the University of Michigan has another idea: have paper money trade at a discount to electronic money. In other words, one dollar in your pocket would no longer be worth one dollar in the bank, so there will be an exchange rate between paper money and electronic money. Then when interest rates are negative, the exchange rate could be set so that physical currency will depreciate in value over time, and there will no longer be an incentive to stuff money into a safe."
LINK HERE to the article

1 comment:

Anonymous said...

Uncle Sam to Backstop Bankster Derivatives & PEU Stakes

This makes it sound like bank money is invested in a myriad of private equity funds, as opposed to the bank having a private equity subsidiary within the holding company. Banks frequently spin off and sell subsidiaries. Why not their PEU divisions?

Big banks may get to keep their PEU stakes and keep public backing for risky derivative trades. Time reported last year.

While there’s no way of knowing for sure, estimates of the face value of all derivatives outstanding tops a quadrillion (1,000 trillion) dollars, or more than 14 times the entire world’s annual GDP.

The risk underlying derivatives is they are sold for little to no money relative to the underlying bet.

Each actual dollar in the derivatives market is supporting between $35 and $70 of nominal value. Losses of only a few percent of face value therefore would be enough to wipe out even the best-capitalized derivatives traders.

Leverage of 35 to one (potential risk to underlying fund) brings to mind Carlyle Capital Corporation which levered 36 to 1 (debt to equity). CCC was the canary in the financial services coal mine imploding in Spring 2008, months before Lehman Brothers fall.

The more things change the more they stay the same. Same sponsors, same political system which requires huge fundraising to be elected.

Politicians Red and Blue love PEU.