Zero/Negative Rates Don't Work - Savings Rate - Buybacks
Quick one here, given the world looks set to resume it's ludicrous experiment with negative rates in order to spur "growth" and encourage spending.
I thought it was only reasonable to see what effect the past decade of ZIRP (Zero Interest Rate Policy) has had on the personal savings rate.
Before we begin, i understand that the fed funds rate is not the explicit rate at which retail individuals are able to take loans out, but it is the internal cost of money for banks, i.e. the lower the fed funds, the lower the rate at which the banks would need to make loans in order to be profitable (in theory).
As we can see, the savings rate and the fed funds rate moved, very loosely in the same direction all the way up to the GFC.
At this point the fed started QE and introduced ZIRP in an attempt to coax the public into taking on more debt and going into the real economy and spending money. But rather, the public began to increase their savings rate, in other words, the fed's plan backfired.
In fact, the only real boost from the low rates has been from corporate buybacks, with buyback programs and corporate stock purchases being the largest contributor to the (now dead) bull market.
So one has to wonder, what was the purpose behind the artificially low rates?
I adhere to the view that if you are in doubt as to the motivation for a particular action, look at the consequence and infer motive from the outcome.
When viewed through this lens the fed's motive for lowering rates was to bailout corporate America and further enrich the executives, CEOs and directors, aided by free money with which they gave themselves golden parachutes, share buybacks and generous bonuses.
Hmm...
I guess ZIRP, QE and the other programs the fed rolled out in 2008 onwards was a stunning success then.
-TradingEdge
Corporations buying their stock back
https://www.zerohedge.com/news/2019-09-06/there-has-been-just-one-buyer-stocks-financial-crisis
I thought it was only reasonable to see what effect the past decade of ZIRP (Zero Interest Rate Policy) has had on the personal savings rate.
Before we begin, i understand that the fed funds rate is not the explicit rate at which retail individuals are able to take loans out, but it is the internal cost of money for banks, i.e. the lower the fed funds, the lower the rate at which the banks would need to make loans in order to be profitable (in theory).
As we can see, the savings rate and the fed funds rate moved, very loosely in the same direction all the way up to the GFC.
At this point the fed started QE and introduced ZIRP in an attempt to coax the public into taking on more debt and going into the real economy and spending money. But rather, the public began to increase their savings rate, in other words, the fed's plan backfired.
In fact, the only real boost from the low rates has been from corporate buybacks, with buyback programs and corporate stock purchases being the largest contributor to the (now dead) bull market.
So one has to wonder, what was the purpose behind the artificially low rates?
I adhere to the view that if you are in doubt as to the motivation for a particular action, look at the consequence and infer motive from the outcome.
When viewed through this lens the fed's motive for lowering rates was to bailout corporate America and further enrich the executives, CEOs and directors, aided by free money with which they gave themselves golden parachutes, share buybacks and generous bonuses.
Hmm...
I guess ZIRP, QE and the other programs the fed rolled out in 2008 onwards was a stunning success then.
-TradingEdge
Corporations buying their stock back
https://www.zerohedge.com/news/2019-09-06/there-has-been-just-one-buyer-stocks-financial-crisis
