Did anyone see Federal Reserve Chair Janet Yellen testifying before the House Committee on Financial Services on February 10, 2016? She does not project confidence that the FOMC knows what it is doing with regard to monetary policy and the economy. The FOMC’s plan seems to be no plan except merely reacting to events. Yellen projects fear and uncertainty. When asked about the Fed’s legal authority to set negative interest rates, she squirmed in her chair. Ultimately, Yellen admitted that the Fed would use negative interest rates if a deteriorating economy warranted the action.
Here’s what Frank Hollenbeck of Mises Institute said recently about the subject of negative interest rates:
“The goal of such rates is to force banks to lend their excess reserves. The assumption is that such lending will boost aggregate demand and help struggling economies recover. Using the same central bank logic as in 2008, the solution to a debt problem is to add on more debt.
“The very low interest rate environment in Japan and the EU has done little to spur demand in an environment full of malinvestments and growing government constraints.
“So, the more you interfere with interest rates, the more you create a misalignment between demand and supply across time, and the greater will be the adjustment to realign output with demand to return the economy to sustainable economic growth with rising standards of living. Negative rates will only ensure an ever greater misalignment between output and demand.
“As with Japan, Western economies that pursue a long-term policy of low or negative interest rates can expect decades of low growth unless these “unorthodox” monetary policies are rapidly abandoned.” (Source: https://mises.org/library/why-negative-interest-rates-will-fail)
“Frank Hollenbeck teaches finance and economics at the International University of Geneva. He has previously held positions as a Senior Economist at the State Department, Chief Economist at Caterpillar Overseas, and as an Associate Director of a Swiss private bank.” (Source: Mises Institute)
From CNN Money:
“We’re all going to pay a horrible price for the incompetence of these central bankers,” famed investor Jim Rogers said Monday in a TV interview with CNN Money’s Nina dos Santos. “We got a bunch of academics and bureaucrats who don’t have a clue what they’re doing.”
“The Singapore-based American investor said central bankers are doing everything they can to prop up financial markets, but it’s all for naught. He predicts their unconventional monetary strategies will lead to a stock market rally in the near future, but deep trouble later this year and into 2017.”
“‘This is going to be a disaster in the end,’ he said. ‘You should be very worried and you should be prepared.’” (Source: http://money.cnn.com/2016/02/15/investing/jim-rogers-central-banks-stock-markets/)
Comforting, isn’t it.