Feds Considering NIRP

The president and CEO of the US federal reserve bank out of San Francisco, John Williams indicated the the US may look at NIRP (Negative Interest Rate Policy). In his opening statement at the 2 day conference on Asian economic policy he said ‘We will all be better able to contain the next economic recession if we develop approaches that succeed even when many countries are simultaneously constrained by the lower bound, and that means taking into account the nature of monetary policy spillovers’.

He added ‘Strategies that central banks should consider including not only the bond buying and forward guidance used widely in the last recession, but also negative interest rates that was used in some non US countries, as well as untried tools including so called price level targeting or nominal income targeting. Central banks may also want to consider setting a higher inflation target.’

If NIRP is enacted, that would be a major impetus for the precious metals. The reason is that precious metals are a store of wealth. It is true that precious metals do not earn a yield or pay interest but if the alternative (money in the bank) has a negative interest then the money stored in the bank loses money over time and precious metals will not. Precious metals have been beaten down in price to keep the naked shorts from exploding. If savers / investors begin to pull their money from the banks some of it will likely be placed in the metals and the price will rise. Undoubtedly the bankers (commercials) will try to stem the tide by issuing more paper metal contracts (naked shorts) but eventually the market will demand delivery in actual metal and not fiat currency. Not if but when this occurs the price of the metals will go exponential.

Some will say that the money will flow in the stock market and I agree but the stock market is overvalued now and the influx of more money will exacerbate this. If you are in doubt of the market being overvalued, I urge you to take a look at the P/E (price/earnings) ratios. Some money will flow into the crypto market, again I agree but remember the selling point of the cryptos is that there is a cap on how many can be mined. If you can’t afford a bitcoin now when the influx happens you will be looking at being able to afford one one millionth of one. By the way, I am an advocate of cryptos but I am cautious because it is not a tangible asset.

About the author: outwalking

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