From the FED: Monetary Policy in a Zero-Interest-Rate Economy

This document really scares me, especially this particular part

The strategy for eliminating the zero bound, therefore, is to make money pay a negative nominal interest rate by imposing some type of “carry tax” on currency and deposits. A tax on money holdings of 0.5 percent per month, for example, would mean that money, in effect, pays a negative nominal interest rate of roughly –6 percent. Market interest rates would then be free to fall into negative territory, and the Fed could continue to cut short term rates, with –6 percent as the new lower bound.

So either I am reading this wrong, or the FED is actually thinking about charging us for SAVING our money???

Back to the 1st national bank of Serta for me!

does anyone get the feeling that the FEDs time maybe up. a major change will be necessary.

MessOnTheFED!

reply to post by redhatty


Wow that is what Im reading here. So if you save your money you get charged. WTF is that crap. Can someone verify? IF it IS the case you solve it by buying physical gold and silver. That is how you fix that. There is your savings.

[edit on 8-12-2008 by mybigunit]

desperation, maybe?

easy, free (to some) money has destroyed the real world, no amount of tinkering will bring >the economy< back to live, as the economists say, you can't push on a a string, or somesuch.

currency reform will be the next thing, followed by a police state to enforce it. Q: who's going to pay all these thugs' salaries?

But has this perhaps been happening for years already?

They've been giving people a few % interest, claiming inflation is much lower than that figure, while at the same time true inflation has arguably been at least three times the official rate, i.e. at least twice the savings rate.

I was wondering about such issues back here:

www.abovetopsecret.com...

...although my question was couched in terms of the whether the banks have effectively been lending people money at a loss. (I know it sounds bizarre!)

It all has to do with the reliability of official inflation figures. And the case against their reliability is indeed strong.

(Check out the whole thread for a thorough discussion.)

I wouldn't be surprised if my hypothesis re this strange disparity is flawed. The (very knowledgeable) guy who attempted to provide an answer in that thread made a lot of sense, although the question remained to a degree unanswered, I believe.

Just trying to introduce a broader perspective.

reply to post by pause4thought


In a sense I believe you have a valid point, but what this FED document is saying, if I read it correctly, is that should the FED go to Zero interest rate percentage, that they are contemplating charging (in this doc, 6% interest per annum) against money people put into savings. Charging, not paying at all!!

That is on a grander scale than not accruing as much interest as should be deserved, this is more like taking away people's money because they are frugal enough to save in the first place.

It's almost like saying, spend it, don't save it, or it will cost you to hold on to your $$

I would think the reasoning behind it is to get people to spend all their money so it's not taxed causing the market to have a sustainable non-stop income. Along with promoting people to go out and get loans.

However it is the stupidest thing I have ever heard.

Maybe it should be anyone with a savings of 10 million or more can be taxed the 6 percent but if there account is at or less than 10million there would be no tax.

Never happen as the whole darn country would revolt.

reply to post by redhatty


I see what you're saying. It's like throwing away the rule book.

We could do with someone coming in with a historical perspective. Has this ever been done before?

(This is a great find, redhatty. Intriguing.)

Forgive me for being stupid, but if something like this happened why in the world would people still put money into a savings account instead of just leaving it in their checking account?

Never happen as the whole darn country would revolt.



IF the country had the knowledge that is should, this would be the case.
Sadly, Most don't save anyhow and are too ignornat to understand what Neg. Zirp is...........

Southwest Economy

Issue 4, July/August 2003
Federal Reserve Bank of Dallas

Monetary Policy in a Zero-Interest-Rate Economy????

reply to post by pause4thought


Good point.

But, if it means what it sounds like it does, this is going a step further than "inflation tax", as it is not just a "passive" devaluation of the currency (although I know inflation is not really passive). But, they are actually imposing an actual direct tax - on top of inflation - to your holdings.

Ridiculous.

I would be willing to bet that this is the first time a government has openly acknowledged this sort of negative rate of return. It would be interesting to see if this has been tried in the past. Which I agree, if it has, would certainly have caused a revolt. However, I also agree that our current system - should - cause people to revolt, though it doesn't.

I'm still reading the doc -- interesting on the whole. The idea is how to lower "real" interest rates below that of actual inflation to make the prospect of borrowing money and lending money worthwhile, thereby assuring that cash is still circulating in the system.

The argument is that central banks cut rates slower than the deflation rate in such an environment (yet again, policy makers are using the Great Depression as an example), which in essence makes the rate "cut" still more expensive to borrow the money than just put it under the cushion.

What I think may be misinterpreted here is who that borrower is: I don't think they're saying that consumers will be charged to literally save money, but that banks which borrow money from the Fed will be charged, thereby incentivized to actually make loans in a deflationary environment, thereby (smartly?) giving companies the cheap capital needed to fuel expansion and what not.

Originally posted by Darthorious

Never happen as the whole darn country would revolt.

No Im sorry the country wont revolt. We will take it on the chin and continue on with life like always. Our society doesnt have the stomach for revolt. We would rather be sheeple and worry about what is going on in Paris Hiltons life than worry about every single bit of freedom being stripped from us. Sorry I have to disagree with your statement.

Shouldn't the Federal Reserve have been done away with back when Kennedy was President, and he wanted it to be? Gah.

I checked out the Federal Reserve's Main Website, hoping to see if there was any more information on their Monetary Policy and how they conduct it (I wanted to know if its similar to ours in Canada), but I couldn't find anything regarding this sort of drop in the interest rate...Not even the most recent press releases. Federal Reserve, Monetary Policy

Either way, charging you interest for SAVING your money -- that is a little on the backwards side. You GIVE your money to the bank, they pay you a fee for keeping your money there, (to entice you from keeping your money in a jar on top of your fridge), they borrow that money you've invested in the bank and use to to lend to other bank members. It's a cycle.

Now... My question is.... What happen's if everyone panics and decides to withdraw all of their money from their savings accounts and do away with using a bank allotogether (not that its very likely), but if everyone takes their money out of the banks - then what, will the purpose of the bank be? The bank won't be able to lend money - unelss of course they are the larger banks that deal with massive corporations - but even then, I don't understand why ANYONE would keep their money in a bank if it was costing them...?

Maybe I've interpreted this wrong (I'm not so great in my Econ classes so it's entirely possible), but it looks to me, as if by lowering the interest rate (so low as to go into the negative) people aren't going to SAVE their money. People are going to SPEND...which makes me wonder, if this is directly linked to the upcoming anticipiated inflation rates...People aren't going to have a choice BUT to spend Money anyway. If they save their money in the bank, they'll lose their purchasing power due to the negative intrest; and if they Spend their money they're going to lose purchasing power as well - due to inflation.

So....what exactly is going on in the Federal Reserve....? And is this ultimately leading to the devaluation of the USD? And if so...is this leading to a reformed currency...like a one world currency..?

- Carrot




[edit on 12/8/2008 by CA_Orot]

Originally posted by mybigunit

Originally posted by Darthorious

Never happen as the whole darn country would revolt.

No Im sorry the country wont revolt. We will take it on the chin and continue on with life like always. Our society doesnt have the stomach for revolt. We would rather be sheeple and worry about what is going on in Paris Hiltons life than worry about every single bit of freedom being stripped from us. Sorry I have to disagree with your statement.

No we wouldn't keep our money in the banks and the banks would have less than even now realistically speaking.

You must live in a strange area I guarantee where I live this would never happen. If it did can you say no such thing as a bank due to my above comment or complete revolt chances are both. I have no idea where you live so I assume it must be in a rich neighborhood cause here this would not happen and they would not get away with it 100% fact.

Its got to be a hoax - all that will happen is people will take their money out of the bank & store it in safety deposit boxes or safes, hence zero charge & no money for the bank, causing them an even greater liquidity problem.

On top of that, a negative interest rate is effectively paying you to borrow money.

Allow me to reiterate:

This economist is not saying the Fed should charge consumers money if they don't spend. He's talking about banks.

When a bank borrows money from the Fed, instead of hoarding it in-house to cover spreads or what-have-you, this economist says maybe the Fed ought to charge money to said bank that does such in order to encourage them to loan the money to consumers.

Negative interest... that's hilarious. Now money really does burn a hole in your pocket!

All these clowns want is to use money as a mechanism to apropriate actual wealth, and they will do anything, apparently, to make it so. Even charging the people money for having money.

Now I can see why some people are saying capitalism is dead. Braindead.

Interesting, so, since my mortgage or car load is figured from the prime, I could end up with them "paying" me to have a mortgage? or buy a car?

This could create a "run on the banks" to move savings to something that does get interest.

Not a good situation at all, but, I am no authority on how the FED works.