Tags: Ron Insana | Fed | Negative | Interest Rates

Ron Insana: US Inching Closer to Negative Rates, Farther From Hike Talk

Ron Insana: US Inching Closer to Negative Rates, Farther From Hike Talk
Ron Insana (roninsana.com)

By    |   Friday, 23 October 2015 06:00 AM

Ron Insana, a CNBC and MSNBC contributor and the author of four books on Wall Street, wonders if the tide isn’t turning to actual negative interest rates from a rate hike.

“Investors have been holding their breath over the last several months, waiting for the Fed to raise official interest rates above zero, where they have been since the end of 2008, at the very depths of the financial crisis,” he writes for CNBC.com.

“The Fed has held off raising them ever since, first to reflate the U.S. economy, and then later to avoid tightening the supply of money as the global economy stumbled in 2011 and, most recently, this past summer. The wait may prove longer than expected, given China's slowing economy, falling domestic and global inflation and market disruptions that have given the Fed pause,” he wrote.

Meanwhile, Narayana Kocherlakota, president of the Minneapolis Fed, recently said the Fed should consider pushing rates below zero to help further improve the employment picture and to drive inflation back toward the Fed's stated two percent target, which it has missed for the past six years.

“So, how does the Fed get to negative rates? The central bank can undertake certain measures that would punish banks, for instance, for holding their excess reserves at the Fed,” Insana wrote.

“Right now, the Fed pays banks a quarter point on the money they deposit at the Fed, of which there is more than $2.5 trillion sitting idle. If the Fed eliminated that payment, or more aggressively, charged banks to hold their money, the banks would withdraw it immediately in order not to lose money on their cash holdings and, hopefully find better things to do with it, like making more loans,” Insana explained.

In extreme circumstances, the Fed could do the same to consumers, forcing them to spend rather than save, thereby juicing the economy, Insana warned.

“However, that would be a game-changing moment in the history of monetary policy that would likely have broad political implications and could provoke Congress to limit the powers of the central bank.”

Meanwhile, other prominent economic experts say the government is to blame for placing the U.S. economy in the fast lane to disaster.

Newsmax Finance Insider Stephen Moore says that Washington doesn't understand what went wrong in 2007 and 2008, so the Fed, the White House and Congress are recreating the very same conditions for another financial bubble.

"If it pops, we could replay the same devastating effects as occurred during the first bubble in 1999 and 2000," he wrote.

"Government and politicians have no learning curve. All of the conditions of financial wreckage are reappearing. This is why congressional Republicans absolutely should put up a fight on the debt ceiling by requiring more budget discipline as a condition of higher debt levels," he advised.

But others disagree.

Billionaire hedge-fund manager Jim Chanos says economic improvement in the last eight years, mostly under the Barack Obama administration, has been “pretty amazing.”

"Of all the major economies right now, we're the place to be," legendary short seller Chanos told CNN. "The strides we've made the last eight years are pretty amazing," said Chanos, founder of Kynikos Associates.

Chanos helped to raise more between $200,000 and $500,000, according to OpenSecrets, for Obama's re-election campaign, CNN reported.

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Ron Insana, a CNBC and MSNBC contributor and the author of four books on Wall Street, wonders if the tide isn't turning to actual negative interest rates from a rate hike.
Ron Insana, Fed, Negative, Interest Rates
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2015-00-23
Friday, 23 October 2015 06:00 AM
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