Friday, July 08, 2016

Can You Imagine The Federal Reserve
Raising Interest Rates In This World? 
John Rubino* identifies negative events increasingly happening around the world which are making it increasingly impossible for central banks to raise interest rates .. Brexit fallout. "Several interesting post-vote developments include a plunging pound sterling, decapitation of the major UK political parties, and — much more serious from a financial stability point of view — a wave of withdrawals from UK property funds that have forced a total of 6 to halt redemptions. That’s reminiscent of those Bear Stearns hedge funds that did something similar just before the Great Recession hit." .. Italian bank collapse. "These banks have had 15%+ non-performing loan ratios for the past year, which is to say they’re already dead but, inexplicably, are still walking around. Now they’re tanking and the Italian government will soon be forced to bail them out. And — here’s the really scary part — in his desperation, Italy’s prime minister today asserted that Deutsche Bank is actually more dangerous that its Italian counterparts. Governments competing over whose banks are in worse shape are playing with fire." .. so the idea of the U.S. raising interest rates while the above is going on is "ludicrous ..  Much more likely is a zero to slightly negative Fed Funds rate by this time next year, with a near-flat yield curve as long rates fall faster than short. And since raising rates was the only remaining way to save the U.S. financial sector from the ravages of low returns, look for the crisis to migrate across the pond shortly."
LINK HERE to the article

1 comment:

Anonymous said...

Actually I can. Likely moves in interst rates with them being so low are pretty well meaningless anyway for all practical purposes.