negative interest rates and precious metals
coinkat
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What happens to precious metals if negative interest rates arrive in the US?
Experience the World through Numismatics...it's more than you can imagine.
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than Risk the money in an investment that might go up or down 10 or 30 or 50% or more over any given time period. (For example, stocks, commodities, etc)
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Experience the World through Numismatics...it's more than you can imagine.
Negative interest rates, like inflation, destroy the value and purchasing power of currency. They are taxes that someone else is skimming off of the top. PM prices react accordingly. PM prices change only because of the changes to the value of what they are priced in.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
While real estate is clearly not immune to price fluctuations, income producing real estate at least provides a return on the initial investment with the continued hope/expectation that the underlying asset also appreciates over the course time the asset is held.
In the Boston area, rental units are in strong demand, as always location plays heavily in the extent of that demand, but overall if you are a landlord you won't likely be waiting very long to fill a vacancy.
If negative rates ever did come to fruition here in the U.S. I believe selective income producing real estate holdings would be a good play, provided you also have enough money to purchase the property outright, or with minimal loans, and you factor in being able to handle the ownership expenses for a couple of years should the occupancy rate drop unexpectedly. (That's were being selective really comes into play.)
As for PM's, I think baley has a valid point. I also feel that with each new generation the populous as a whole in this country have less and less understanding and appreciation of PM's.
My PM holdings are #1) insurance [for any need that could arise], #2) a hobby, #3) make up a small percentage of net worth.
I don't see negative rates changing anything for me with respect to the PM's I hold.
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The current big bank .00001% or .0001% on standard light cash savings accounts might as well be negative rates.
Good point. And how does that affect prices for precious metals?
probably not very much, compared to market demand for other reasons, changes in supply, and of course, manipulation by conspiracy
Liberty: Parent of Science & Industry
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I think a lot of people would rather park most of their money in an otherwise 'safe' bank account with a guaranteed negative interest rate of, say -1%,
than Risk the money in an investment that might go up or down 10 or 30 or 50% or more over any given time period. (For example, stocks, commodities, etc)
Those dollars sitting in a savings account are an "investment" and can easily move up or down that same 10, 30, or 50% over any given time period. One thing you aren't factoring in is the systemic banking risk due to black swan type events. Even the 1934 gold reserve act devalued the dollar vs. gold over 50%....overnight. "Risk-free" investments and places to park your cash are usually not risk free. They are only as good as the counterparties involved and the faith in the economic/financial system.
10-20% USDX moves in as little as 3-4 months have happened a number of times over the past 10-15 years. One has to factor in more than the interest rate being paid to determine how successful leaving it in the bank is. The tiny interest being paid or charged is almost irrelevant vs. the dollar pricing swings. Bank "bail-ins" around the world have already occurred, leaving depositors on the hooks for the banks bad investments.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
We are not likely to see negative rates for bank deposits here. Rates might
approach, but not reach zero.
Banks want deposits and the transactions which generate
significant fee income. I was in Citibank yesterday and they are offering
"bonus interest" up to $500 for new deposits.
No depositor has ever lost a penny in an FDIC insured bank account.
No depositor has ever lost a penny in an FDIC insured bank account.
Not because of FDIC insurance and only because tax payers lost their shirts covering bank losses. Next one will fall on the depositors, the ground work has been laid. FDIC will need a bailout before the end of the first day of the next banking crisis. Look for FDIC rules/protection to be quietly altered.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
also.
The US Treasury made a profit on TARP and the AIG bailout.
If it happens again, the FED and Treasury will raise FDIC coverage limits.
I knew it would happen.
Experience the World through Numismatics...it's more than you can imagine.
I'd have to see the documentation on that.
I knew it would happen.
The US Treasury did make money on the AIG bailout-
I'd have to see the documentation on that.
7 years of ZIRP + $4.5 trillion in QE + X = presto change-o.
Oft repeated, yet nevertheless, a false statement.
Liberty: Parent of Science & Industry
made specific investments in each bank and got a specific number of
shares and warrants in each bank.
When these were later sold, the Treasury made money. The prospectuses
are all available online.
There was absolutely no creative accounting.
If the banks get in trouble again, they will be rescued again
because there is no alternative.
and HSBC in particular.
Have to watch. Citi and Bank of America have not been acting well, although
their stock prices recovered today.
The Treasury made a profit on TARP and the AIG bailout. The Treasury
made specific investments in each bank and got a specific number of
shares and warrants in each bank.
When these were later sold, the Treasury made money. The prospectuses
are all available online.
There was absolutely no creative accounting.
If the banks get in trouble again, they will be rescued again
because there is no alternative.
Give them unlimited free money for years on end, pump enough QE to get the share prices up and presto change-o, the treasury "made" money on the deal! Only cost $5 trillion to make $5 billion. What a deal!
Wall Street owns D.C. so we won't see alternatives but of course there are alternatives. Lots of them. But we'll keep shooting bullets as long as the USD Corral holds up.
When you have tens of $billions of bad loans on your books that nobody will buy from you, and FASB is coerced into new rules that eliminate mark-to-market - what would YOU call it?
I call it "creative accounting" but maybe that's different than outright fraud. I'm not a lawyer, so I can't give you the legal term off the top of my head.
Bankruptcy laws, some prosecutions and some firings should have taken care of the whole mess. Instead, taxpayers got punished and bankers got bonuses. Fact.
I knew it would happen.
The Fed QE consisted of purchasing debt securities. The Fed balance sheet
is currently just below $4.5 trillion. These are US Treasury notes and bonds, and
Agency Debt and Mortgage securities. The securities are worth more than
what the Fed paid for them.
In normal times, Fed purchases of Treasury notes and bonds increases
inflation.
Because of worldwide economic weakness, the liquidity created by these purchases
has resulted in increased stock and bond prices and the increase in the value of
the dollar.
How did taxpayers get punished?
The Fed QE consisted of purchasing debt securities. The Fed balance sheet
is currently just below $4.5 trillion. These are US Treasury notes and bonds, and
Agency Debt and Mortgage securities. The securities are worth more than
what the Fed paid for them.
In normal times, Fed purchases of Treasury notes and bonds increases
inflation.
Because of worldwide economic weakness, the liquidity created by these purchases
has resulted in increased stock and bond prices and the increase in the value of
the dollar.
Here's how the taxpayers really got punished: This worldwide economic weakness you reference is and has been punishing each and every one of them. The weakness is a result of monetary policy makers being wrong as usual all the way back to repeal of Glass Stegall and right through easy money "everyone should mortgage a house" policy. Wrap it up nicely with "we can fix the mess we made" by distorting the markets with more easy money. Now that the punch bowl is empty there is a big sucking noise from the deflation vacuum cleaner.
Reward the borrower, punish the saver policy does not work any better than reward the dead beat, punish the producer policy. But don't fret, the FED will save the day (again) with more easy money. As usual, F&#* tomorrow.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
The $4.5 trillion balance sheet are obligations of the US Govt that you and I bear the burden to pay, through no fault of our own, unless you happen to be in one of the "protected" groups. The fact that interest rates are ultra low in historical terms only means that the debt bomb is hidden until rates rise.
The end result of all this will be much higher taxes, fewer social security benefits and business conditions that never get better. We've already been slammed with the "affordable" healthcare tax and there's plenty more to come.
This is simply outright corruption and graft at the highest levels and the biggest skimming operation in world history. Talk yourself into believing whatever fantasy you want. I'm out.
I knew it would happen.
Buy them today.
All that Fed purchases do is to allow Goldman Sachs to front run the prices through the NY Fed and to make a commission on the transactions to boot. Paulson, Geithner, Dudley = all the same schtick. It's *always* been just a banker's shell game.
The $4.5 trillion balance sheet are obligations of the US Govt that you and I bear the burden to pay, through no fault of our own, unless you happen to be in one of the "protected" groups. The fact that interest rates are ultra low in historical terms only means that the debt bomb is hidden until rates rise.
The end result of all this will be much higher taxes, fewer social security benefits and business conditions that never get better. We've already been slammed with the "affordable" healthcare tax and there's plenty more to come.
This is simply outright corruption and graft at the highest levels and the biggest skimming operation in world history. Talk yourself into believing whatever fantasy you want. I'm out.
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It's "the individual shared responsibility payment."
Just an aside....gotta love the euphemism, IRS form 1095-B (healthcare) It's not a penalty, it's not a fine, it's not a tax...
It's "the individual shared responsibility payment."
It's a fine for not buying something that someone else determined is in your best interest. Unbelievable.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
If interest rates went negative and I wanted to invest in income-producing property, I would take out as big a mortgage as the banks would allow. Reason: mortgage interest rates would also fall. A low-interest-rate mortgage would provide a decent spread between my property's income and expenses, and thus would give me flexibility to deal with adverse situations, such as an increase in the vacancy rate.
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When rates go negative, all of the above gets turned on its head. This is why it's so hard to understand what's going on. Taking the above statement and turning it on it's head is difficult without running into several contradictions. Try it.
I knew it would happen.
When rates are falling, the expectation is that rates will continue to fall. Falling rates are an inducement to borrow. When the game changes and rates start to rise, all of that debt looks good but if rates continue down, the higher interest debt becomes a burden.
When rates go negative, all of the above gets turned on its head. This is why it's so hard to understand what's going on. Taking the above statement and turning it on it's head is difficult without running into several contradictions. Try it.
You have proved your point quite well.
Thank you!
because they are considered free of default risk.
All other debt will pay interest. Rates on the debt of the most credit worthy
borrowers will be very low.
As an example, Exxon Mobil, Johnson and Johnson, and Microsoft debt
due in 2 years pays around 1%.
Treasury, municipal, and AAA corporate debt will have higher rates
for longer maturities because in a period of very low rates, investors
expect future rates to be higher.
1. Pay off the home mortgage with accumulated cash.
2. Add more gold to the pile - perhaps another 50 ounces.
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because they are considered free of default risk.
All other debt will pay interest.
You act as if it's inconsequential.
Federal debt that pays no interest is in effect, free government money that corrupts most everything it touches. It undermines competition and free will, distorts markets and gives corrupt politicians the power to pick winner & losers. It's also *not* free of default risk because the obligation for paying it off is dumped onto a public that's less and less able to support it.
The big banks love this crap because they're the prime beneficiaries. Their new banking model depends less on business loans and more on being able to charge a % on every transaction, which is also why there's a big push towards a cashless society. Banking is evolving into a skimming operation that is embedding itself as the only game in town through it's war on cash.
The banking system needs to be held accountable, and auditing the Fed would be a good start. Bankers should never be shielded from criminal liability. Graham-Leach-Bliley never should have been enacted, and it certainly needs to be rescinded, in addition to reinstating the FASB's previous standards on mark-to-market valuation of assets.
Interest rate structures simply provide logic to the time value of money. Destroying interest rate structures is exactly what creates "moral hazard" (which is just a euphemism for "banking industry corruption".)
I knew it would happen.
Your good credit would allow you to re borrow if necessary. The rates banks are currently
paying are close to zero already.
Jmski, you are right on. You make an argument for buying bank stocks. So far, the banks are
far less leveraged and not taking many risks. Citi and Bank of America sell for below book value.
German 10 year at 0.22%
Negative interest rates are a sign of central bank panic and are just another attempt to keep over inflated bubbles from popping. While the world tries to get out of debt central banks will continue to do all they can to increase that debt. Like it or not (I like lower prices) deflation is a natural result of over pumping by central banks. Central bank panic causes loss of confidence. Loss of confidence in economic policy drives up prices for PMs. NIRP indicates the seriousness of central bank panic.
Also good for PM prices is the threat of removal of a return (a positive interest reward) for saving cash. Negative interest rates will redirect savings into something that is perceived to be productive for the saver. While PMs offer no outright return, savers are starting to realize that physical metals do offer protection from NIRP skimming by the bankers.
Also lost in translation is the negative effect that NIRP will have on small bank survival and even possibly credit unions. Power play by the big boys?
Keep an eye on the yen. Further rush to it as a risk-off safe haven will also drive metals higher.
And, this just out:
Gold will smell blood of negative rates
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
We would take deposits and make loans and issue credit cards.
I don't think the FED can let rates on customer bank deposits go negative. There was
a lot of conversation yesterday when Janet Yellen testified to the House.
Congressmen questioned if the FED paying banks 0.50% on bank deposits at the FED
was a subsidy.
She will be testifying to the Senate today.
"Negative interest rates act effectively as a hidden tax funneled directly to banks. They are inherently unhealthy."
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
How savers would respond to Negative Interest Rates.
There's not enough cash in the system to support US savers who would "withdraw a significant amount of my savings and put it in a safe place" (hoard cash).
And this is just the savings account holders. Would money market accounts, CDs and checking accounts see similar cash reductions?
Looks like if the war on cash is lost that the printing presses will be needed to meet the demand for it. This is the real reason cash has to removed from the equation before negative rates can accomplish their mission of "forced consumer spending."
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Derryb, if you and I owned a small bank in a village could we make money?
You mean like in years past when banks required good credit and good income and served the customers and not themselves? They were profitable then - no reason you and I wouldn't be profitable today.
We could even give away toasters.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Timing bubbles is too hard as many here know, especially with PMs.
JMHO.
Their final effort? Printing money and putting it directly in the hands of consumers. This is what will send precious metals through the roof.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I think that negative interest rates are more of a way to stir up the 99% than anyone's idea of a fix. It's idiotic unless you make money via taking a percentage of transactions .
The chaos that would cause is an opportunity for those with deep pockets to acquire hard assets at a discount.
Not stocks but real assets , metals or real estate . Gold you can carry but it doesn't bring income , real estate brings income but location, location, location as always.
I'll go long mobile homes so I can rent them out and at the same time move them to safer locations as the cities burn
Real Estate will be good, people will always need a roof over their heads.
Like in 2008-9?