Zero Interest Rate Conspiracy
Zero Interest Rate Policy and are the Banks Really Just Fighting Deflation?
The idea that bankers can solve every problem with monetary rigging. Is that even possible?
Is the time value of money now being distorted because of low or even negative interest rates?
A zero benchmark rate makes it easier for banks to get money from the Federal Reserve that they can lend out for a profit. This in turn makes money cheaper to borrow for consumers.
The zero interest rate policy
The bonds will have lower returns than normal so investors will look for other places to put their money.
This is the idea that zero or negative interest rates will guide individuals to spend money.
This is another way to stimulate the economy.
The lower rates can help the real estate markets for buyers. These low rates haven’t been available since the 1940s.
This zero interest rate policy was first implemented in Japan, their idea is to make money cheap and thus get some inflation.
The Liquidity Trap
This is when People would prefer holding cash instead of spending it, as they wait to see what further Federal Reserve actions might be forthcoming.
This causes a liquidity trap in which money is trapped and sitting on the sidelines not being put to work.
And that’s a problem as well because the whole idea of making money cheaper to get is to stimulate the economy.
Why Central Banks hate deflation?
Deflation happens when prices are falling.
This would seem to be ideal for most consumers; however, it’s not good for banks.
So let’s look at why’
Banks make loans and carry those loans on their balance sheets. If the value of the items that they made the loans on the decline, well then they have a problem don’t they?
How Banks Become Insolvent
A bank is said to be insolvent when the loans it’s carrying in its books are greater than the value of the assets which were pledged for those loans.
Can you now see how this can become a problem for the banks and why the Central banks always strive for at least a 2-3 percent interest rate?
You see as long as the assets remain greater. In value than the loans on an aggregate level then the banks are OK.
So the conspiracy is that the banks are trying to save themselves with the Zero Interest Rate Policy’
