Submitted by Taps Coogan on the 18th of July 2019 to The Sounding Line.
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CNBC’s Rick Santelli recently shared his thoughts about the growing prospect of a return zero or negative interest rates in the US and how unpopular he thinks that they will be among the American public.
Some excerpts from Rick Santelli:
“Consider this: Every country, whether it’s the United States, Japan, all the members of the Eurozone, they look at issues such as inflation, productivity, growth, as domestic issues. They do acknowledge global (factors), but really when you take a step back, it’s just like the analogy of ‘All stimulus is fungible.’ That if… a central bank in another country (eases) that stimulus actually flows throughout the globe. The same can be said, in a very simplified way, for inflation, productivity, growth, labor costs, commodity costs. All these things are on a global perspective and they seek a certain level, which means that the reach of any single central bank to try to implement policy… becomes next to impossible without a unified front. So when we talk about issues such as what our Fed is going to do, or what the ECB or what Japan is going to do, the real point is that the addiction to liquidity and the reason it is created, in a simplified version, is to combat… lack of inflation… But if they can’t make a difference, the damage they are doing is just so gravitationaly impossible to escape. Negative interest rates, once a country gets them, I think it’s going to be nearly impossible to reverse course.”
“Do you really think Americans are going to adjust well to negative rates? …I think Americans are going to hate negative rates. As a matter of fact, I think that it will put central banks, and the Fed in particular, right in the middle of a huge political spotlight. Do central banks and Fed officials really want to be the debate topic of Presidential elections of the future? …Is the fact that savers are going to be decimated part of the American dream?”
“At some point somebody has to say stop to the PhD’s and bring in just a tad of common sense.”
As more and more bonds trade into negative territory around the world, the search for yield is increasingly pushing capital into any market that retains positive yields. The inevitability of continued economic weakness and low rates in Europe and Japan is likely to keep US rates low regardless of what the Fed does.