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  #141  
Old 08-25-2019, 06:52 PM
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DENMARK

https://www.independent.co.uk/news/w...qy7LCLDgyTJVV0

Quote:
Danish bank announces negative interest rates for millionaire saving accounts
Rich will lose money to lender each year


Spoiler:
A Danish bank has announced it will begin charging millionaires a fee to store their money.

Jyske Bank will impose a negative interest rate of 0.6 per cent for clients who deposit more than 7.5m Danish kroner (£916,000).

In effect, it means millionaires will lose money to the bank every year.

The bank, the country’s second-largest lender, will introduce the negative rate on 1 December later this year.

Anders Dam, chief executive of Jyske Bank, said: “The negative interest rate environment has characterised the Danish market almost continuously for seven years. We have always believed that the negative interest rates were temporary. It now turns out to be more permanent.”




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  #142  
Old 08-26-2019, 11:10 AM
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https://www.ai-cio.com/news/larry-su...nterest-rates/
Quote:
Larry Summers Dumps on Jackson Hole Avoidance of Negative Interest Rates
Former Treasury secretary thinks less-than-zero rates do little good and much harm.
Spoiler:
No stranger to sharp-edged opinions, economist Lawrence Summers chided central bank leaders at the Jackson Hole confab for not tackling negative interest rates, which he thinks are an abomination.

In a series of 28 tweets, as world economic leaders gathered at the Wyoming retreat, the Harvard economics professor and former Treasury secretary laid out the case against negative rates. In his view, the practice fails to enhance demand or push economies forward.

In one missive, Summers declared: “Black hole monetary economics—interest rates stuck at zero with no real prospect of escape—is now the confident market expectation in Europe & Japan, with essentially zero or negative yields over a generation. The United States is only one recession away from joining them.”

Negative rates, where depositors pay the bank to house their money rather than receiving interest, are meant to spur businesses and consumers into spending that money instead, or putting it to use getting higher returns in riskier investments that enhance economic growth. A complementary goal is to push banks into doling out more loans.

Alas, negative rates haven’t been the stimulus that many hoped for. And they have chased capital out of Europe to the US, where investors can get better returns on Treasury bonds.

Summers expressed hope that the Jackson Hole conclave, sponsored by the Kansas City Federal Reserve Bank, would chew over the topic. “But we are not holding our breath,” he added. Sure enough, the issue was of little note at Jackson Hole, which was more consumed with the US-China trade war—plus when and how much the Federal Reserve might lower rates.

Summers has an upcoming paper arguing that low rates are of little use. “Interest rate cuts, even if feasible, may be at best only weakly effective at stimulating aggregate demand and at worst counterproductive,” Summers wrote. He warned that they lead to financial bubbles and poorly run businesses, which easy credit props up.
https://twitter.com/LHSummers/status...71956103122944

https://twitter.com/LHSummers/status...73284950921221
Quote:
10 yrs of below-target inflation throughout developed world & the utter failure of Bank of Japan’s extensive efforts to raise inflation suggest that what was previously treated as axiomatic is in fact false: central banks cannot always set inflation rates through monetary policy.
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  #143  
Old 08-27-2019, 03:28 PM
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this could go into a lot of threads, but I think it fits best in this one.

https://www.bloomberg.com/news/artic...falling-yields

Quote:
Pension World Reels From 'Financial Vandalism' of Falling Yields
Funds from Japan to Europe risking losses and benefit cuts
Decline in investment returns reduce global pension firepower

Spoiler:
A once-unthinkable collapse in global bond yields is forcing pension funds to buy bonds that offer negative returns -- putting the financial security of future retirees in jeopardy.

U.S. institutions managing trillions of dollars in retirement savings -- including the California Public Employees’ Retirement System -- have been ratcheting down return expectations. Japan’s Government Pension Investment Fund, the world’s largest, has warned that money managers risk losses across asset classes. In Europe, pension funds may be forced to cut benefits in part thanks to the decline in rates.




Investors were already taking on more credit risk to make up for dwindling income elsewhere, with some chasing less liquid markets like private debt. Now, negative yields on over a quarter of investment-grade bonds -- with more monetary easing to come -- are increasing the urgency for portfolio managers to find new sources of returns.



Global bond yields are falling
“The true madness is pension funds being forced to invest in assets which will be guaranteed to lose, such as in the case of long dated inflation-linked gilts at real yields of -3%,” said Mark Dowding, chief investment officer at BlueBay Asset Management, which has pension-fund mandates. “It is financial vandalism and the government and central banks need to wake up to this.”


Pension funds invest in a variety of assets, but most including defined-benefit plans use low-risk assets such as government bonds as the benchmark discount rate. While that means they have profited from the fixed-income rally, falling yields have also driven up future liabilities -- in turn threatening their ability to meet oncoming obligations.

“The $16 trillion of nominal negative yielding bonds in the world right now -- for the pension industry that’s not a good outcome,” Nigel Wilson, the chief executive offer of Legal & General Group Plc, said in a Bloomberg Television interview.

Ben Meng, chief investment officer of Calpers said earlier this year that the expected return over the next 10 years would be 6.1%, down from a previous target of 7%. Scott Minerd, chief investment officer of Guggenheim Partners, warns that the Federal Reserve’s policy easing is contributing to a likely government-bond bubble and that very narrow credit spreads have greater potential to widen.

Ten-year yields are negative across higher-rated European government bond markets while Germany’s entire curve fell below zero. Similar rates are also sub-zero in Japan, while they’ve recently hit record lows in Australia and New Zealand. In the U.S., 30-year Treasury rates hit an all-time low of 1.91% this month.

‘Dire’ Situation
Peter Borgdorff at Dutch fund PFZW blamed “that ever-lower interest rate” for its coverage ratio that stood at 94.8% at the end of July.

“The financial situation of PFZW is starting to get dire,” Borgdorff wrote in his blog. “A pension reduction in the year 2021 has been threatening for some time. But if we have a coverage ratio at the end of this year that is lower than around 94%, we should already reduce pensions even next year.”

The plunge in yields risks spawning a vicious circle for the industry. The squeeze on returns tends to widen funding gaps, forcing managers or employers to inject more cash into the plans. That’s money which could have otherwise been used to fuel business or consumption so economic growth may take a hit -- boosting calls for even more monetary easing.

Shrinking Assets
“The overall impact is that lower yields can induce households or companies that act as plan sponsors, to save even more for the future,” said Nikolaos Panigirtzoglou, a strategist at JPMorgan Chase & Co, in a recent note. “In our conversations with clients, the experiments of central banks with negative rates are viewed more as a policy mistake rather than stimulus.”

Pension assets dropped 4% in 2018 to $27.6 trillion, according to the Organisation for Economic Co-operation and Development. While gains on stocks have helped plug funding gaps, it’s no secret that income-starved managers have dived into less liquid assets.

One way out of the pension quagmire is to allow more retirement funds to invest in “real assets in the real economy,” said Wilson at Legal & General.


Cases are legion. One of the Nordic region’s largest pension funds is reducing its stock of government bonds for alternative assets, which could include real estate and private equity. A scheme for the retired clergy in England is shifting allocations to private credit. A fund for U.K. railworkers, meanwhile, is looking to boost exposure to private debt to as much as 40% within a private-investment strategy totaling 4.5 billion pounds ($5.5 billion) across two funds.

Chris Iggo, chief investment officer for fixed income at AXA Investment Managers, frets over the fallout from this extended era of ultra-low yields.

“In 2008, most people in the markets had no idea about the leveraged web of instruments that were ultimately linked to the housing market in the U.S.,” he wrote in a note, referring to the subprime debt crisis. “We should be worried about lower and lower bond yields...They may cause some, as yet not fully understood, tensions in the financial system with structural implications.”
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  #144  
Old 08-28-2019, 04:17 PM
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https://seekingalpha.com/article/428...ikely-come-u-s
Quote:
Negative Interest Rates Will Likely Come To The U.S.
Summary
Almost one third of government debt in developed markets already yields less than 0%.

Inflation and economic growth remain persistently low, 10 years removed from the Great Recession.

Chairman Powell may have to entertain unconventional policy measures in the advent of an actual recession.

Low or negative interest rates may be the only thing that keeps western economies solvent.
Spoiler:
Central bankers convened in Wyoming last week for their annual meeting. Interest rates are collapsing everywhere. In the last six months, a third of them have executed explicitly accommodative policies. Federal Reserve chairman Powell stated that there were "no recent precedents to guide any policy response to the current situation.” It's my view that he will have to force short-term rates below zero if and when the US economy falls into recession.

We are now more than 10 years removed from the Great Recession and it appears that the world is lapsing back into another round of interest rate repression. There are strong political and economic incentives for rates to fall below zero here in the US.

There is some objective rationale for a coordinated easing of interest rates. Independent forecasts of global economic growth are mediocre and have deteriorated a bit recently. The IMF recently reduced its forecast for 2019 global growth to 3.2%. Advanced economies are expected to do worse.

The world's premier economic powers, the USA and China, are facing off in a disruptive trade war. Federal Reserve minutes released this week reflect a view among the central bankers that the current conflict will be a persistent headwind to economic growth. Some estimate that US GDP will lose 0.3% each year the trade war continues. Many large European economies have stalled and Britain's exit from the EU will almost certainly reduce trade flows.

The USA is not in a recession now but more and more economists are forecasting one. Nearly 3 out of 4 economists surveyed by the National Association for Business Economics expect a recession by 2021, according to poll results released this month. Even if this survey is alarmist, it's reasonable to consider precedent in order to gauge a Fed policy response. At the onset of the last nine recessions dating back to 1957, the Fed Funds rate was significantly higher than the 2.25% currently targeted. In every case, it was reduced by more than 2.25% before the economy recovered. Usually, the rate cuts were far higher.

We should also consider the context of any Fed action in the near future. Over $16 trillion in bonds are now yielding negative returns - an unthinkable scenario ten years ago. That's about 30% of all the government debt outstanding in the developed world! Oddly, this massive infusion of liquidity into the monetary system has spurred neither rapid economic growth nor inflation.

There are plenty of holders of this negative yielding debt - so far with little to complain about. The iShares International Treasury Bond ETF (Ticker IGOV), heavily weighted toward European government debt, has returned 5% so far this year.

Accommodative monetary policy is nothing new. Very low rates were employed during the Great Depression. In fact, treasury bill rates were at or near 0 during much the 1930s while commercial paper yielded less than 1%. But we ain't in a Great Depression now. The world economy has grown continuously since 2009.

The new wrinkle in the system is the growing role that debt plays in the world economy. The IMF has aggregated debt claims worldwide since 1950. The chart below reveals that debt has grown much faster than the world economy over the past 70 years. This is especially troubling in the developed world, with an aging population more inclined to collect pensions than repay loans.

Source: IMF

Debt to GDPThe nominal dollar amount of debt has swelled to nearly $250 trillion. Those loans need to be serviced at prevailing interest rates. The Great Recession of 2008-09 necessitated very loose monetary policy. Nothing new here. The severity of the recent slump spurred central banks around the world to purchase a massive amount of financial assets to depress interest rates. The balance sheets of the world's four major central banks swelled from about $5 trillion in 2007 to $19.4 trillion today.

Source: Yardeni Research



This time around, though, the response of the real economy was tepid. World GDP growth rates remained at or below 3.0%, Prior recoveries typically demonstrated higher growth from far shallower troughs in economic output.

Despite the massive amounts of liquidity injected into the banking system, inflation has remained stubbornly quiescent. Our own Federal Reserve Bank has struggled to maintain its target rate of 2.0% inflation even as unemployment rates have fallen to near historical lows. Inflation rates in Japan and the eurozone are even lower.

Many economists have speculated about the causes of low inflation. Aging populations, technology, automation, and globalization have all been postulated. Maybe people's own expectations about interest rates have been reframed. There is no clear answer.

Political leaders in the West are beset with their own problems. public and private debt is growing faster than their economies. Aging populations will make servicing this debt more difficult going forward. They are demanding health care and pensions, not higher taxes. The fall in interest rates has been tacitly accepted by the political class (Donald Trump is not so tacit). Indeed, Western economies are receiving a windfall from these low interest rates.

Advanced economies will spend just 1.77% of their combined GDP on debt interest this year, according to the OECD - the lowest since 1975 and down from a peak of 3.9% in the mid 1990s.

Despite massive deficit spending in the west, the price tag of debt has fallen. Cheap money has had a major impact on the world capitals. Policymakers in Washington recently agreed to a budget deal that adds $320 billion to existing spending caps and balloons deficits into the foreseeable future. There is no longer even a pretext of fiscal probity in either political party.

“It’s pretty clear that both houses of Congress and both parties have become big spenders, and Congress is no longer concerned about the extent of the budget deficits or the debt they add,” said David McIntosh, the president of the Club for Growth, a conservative group that advocates free enterprise.

What of this new world of negative interest rates? They now prevail in nations that, at worst, have sluggish economies. It's been ten years since the last recession. What are bankers to do in the event of an eventual downturn. Policy options are limited.

The short rate in the US is about 2%. There is a little room to cut, but frankly, the banking system already has over $2 trillion in excess reserves on deposit at the Fed. Years of easy money have inured lenders to the boundless liquidity available to them. While small interest rates cuts may help at the margin, it's fair to say that the US Federal Reserve and other central banks will have to get pretty novel in the event of an actual recession.

Chairman Powell may have to accommodate the tide of rising liquidity around the world by reducing rates below zero. His political brethren in Washington will hardly object. They have social programs to fund and taxes to cut. There is no appetite for sacrifice. Even business people are calling for longer dated bond issues to lock in these lower rates and pay for infrastructure.

Think of low interest rates as a party fueled by the financial equivalent of methamphetamine. Like the addict, the economy requires more and more stimulus to run in place. It's a worrisome state of affairs. However, it's a drug that has yet to reveal adverse symptoms. The party will go on because the party must go on.

Disclosure: I am/we are long IGOV, AGG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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  #145  
Old 09-03-2019, 07:08 AM
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https://www.blackrockblog.com/2019/0...rOhtrCsXx_Og8I
Quote:
Should you care about negative bond yields?
Spoiler:
In some parts of the world, bonds are yielding less than zero. Karen explains how that can happen, what it means for your portfolio and moves to consider.

Global interest rates have seesawed in 2019. At the start of the year, most investors expected higher interest rates, only to see them decline on weak economic data and dovish signals from the U.S. Federal Reserve. The Fed actually cut rates at the end of July, and the market believes they’re not done yet.

How low can yields go? While yields in the U.S. are still positive, there are now approximately $15 trillion in government bonds trading with negative yields — that’s over 27% of all such bonds issued globally. The degree varies by market. In Germany, negative yields run across the entire yield curve, from 0 to 30 years, while in Japan it’s largely the short-end that’s affected.1



How do negative-yielding bonds work?
Negative yields may sound counter-intuitive, since bonds typically pay a coupon (a set interest rate) on the principal investment. In fact, in uncertain markets, investors in government bonds may be willing to accept lower proceeds in exchange for a sense of safety compared with riskier securities.

Investors don’t physically pay the issuer when yields are negative. Instead, the bond’s new issue price trades at a high premium to par, which results in a negative yield. For example, in May, the German government issued a 2-year bond with a 0% coupon and an issue price of €101.33. Over the course of the bond’s life it will not distribute any coupons payments but will payout a final maturity of €100. Consequently, this bond has a yield of -0.65% at issuance because an investor paid €101.33 to receive €100 two years later.

It is also possible for corporate bonds to have negative yields because they are issued with a “spread” over similar-maturity government bonds. In a simplified example, if a corporate bond has a spread of 0.5% over a similar maturity government bond that yields 1.5%, then the corporate bond’s total yield will be about 2.0%. That means if the yield of a government bond is more negative than the corporate bond’s positive spread, it could drag the corporate bond’s yield below zero as well.

Do U.S. investors have to worry about negative yields?
With rate cuts on the horizon, bond yields may continue to fall. While the U.S. Treasury has indicated that it does not wish to issue negatively yielding securities, the possibility of market yields falling below zero can never be completely ruled out. However, even during the depths of the financial crisis the Fed never cut the Fed Funds rate below zero, instead holding the line at 0%-0.25%.

Furthermore, current overnight U.S. interest rates are 2.00% to 2.25%, so yields are firmly in positive territory. In contrast the European Central Bank (ECB) has their current overnight rate at -0.40%.2

How to navigate negative (and low) yields
For U.S. investors, the challenge is less about negative yields than low yields. Across regions and asset classes, bond yields are significantly lower than they were before the start of the global financial crisis.



While opportunities are less plentiful, however, there are still some options for bond investors if they get selective. Below are three strategies to consider, using bond exchange traded funds (ETFs).

1) Focus on U.S. markets
While U.S. bond yields are low, they are currently yielding more than other developed markets and continue to offer a ballast to equities.

Funds to consider:

iShares Core US Aggregate Bond ETF (AGG)
iShares National Muni Bond ETF (MUB)
iShares Broad USD Investment Grade Corporate Bond ETF (USIG)
2) Seek income in high yield and emerging markets
In a low-interest-rate environment, yield will be a more important component of total return. For those with some risk tolerance, bonds with more credit risk can potentially boost income.

Funds to consider:

iShares iBoxx $ High Yield Corporate Bond ETF (HYG)
iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB)
iShares Preferred and Income Securities ETF (PFF)
3) Ride the global wave down with international bonds
Investors who believe that yields will continue to fall, especially outside the U.S., can look to international bonds for potential price appreciation. (As bond yields fall, their prices increase.)

Funds to consider:
iShares Core International Aggregate Bond ETF (IAGG)
iShares International Treasury Bond ETF (IGOV)
Karen Schenone, CFA, is a Fixed Income Product Strategist within BlackRock’s Global Fixed Income Group and a regular contributor to The Blog.


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  #146  
Old 09-12-2019, 02:35 PM
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this stuff is driving me bonkers

https://www.marketwatch.com/story/ec...omy-2019-09-12

Quote:
ECB cuts key rate, relaunches QE to shore up eurozone economy
Euro dips to 2-year low versus U.S. dollar after ECB move, then recovers


Spoiler:
The European Central Bank delved deep into its tool box on Thursday, cutting its deposit interest rate further into negative territory, launching a new round of monthly bond purchases and taking other steps to stimulate a flagging eurozone economy.

In outgoing ECB President Mario Draghi’s next-to-last meeting, the central bank, as expected, delivered a 10 basis point cut to the deposit rate that banks pay to park excess reserves with it. The move pushed the rate to minus 0.5%.

In a news conference following the decision, Draghi said stubbornly low inflation, which remains well below the ECB’s target of near but just below 2%, was the main driver for the decision.

Draghi said risks to the eurozone outlook had increased as a result of prolonged global trade disputes and concerns about the prolonged process involving the U.K. exit from the European Union. Risks of a eurozone recession remained “small,” he said, but had increased since the ECB’s last meeting.

Economists had been less certain whether the ECB would also move to relaunch its quantitative easing program at its September meeting, but policy makers did so. The ECB said it would begin buying 20 billion euros a month worth of securities beginning Nov. 1.

Doubts had emerged in the runup to the meeting after a handful of ECB officials, in public remarks and media interviews, had questioned the need for relaunching asset purchases. Draghi, in a news conference following the decision, said there had been broad support for the rate cut and an extension of the central bank’s forward guidance on rates, but acknowledged more “diversity” of views on relaunching bond purchases. Still, there was a broad consensus in favor of the entire package.

Moreover, economists were describing the ECB’s asset-buying plan as “open-ended” QE, with policy makers pledging to continue purchases “as long as necessary to reinforce the accommodative impact of its policy rates” and to end shortly before the ECB begins to raise key interest rates.

“Today’s decisions have anchored and enshrined the Draghi legacy in future ECB decisions. ‘Whatever it takes’ has just been extended by ‘as long as it takes,’ said Carsten Brzeski, chief economist at ING Germany, referring to Draghi’s famous 2012 pronouncement at the height of the eurozone debt crisis that the ECB would do “whatever it takes” to preserve the euro.

Among other steps taken by the ECB on Thursday, policy makers extended the so-called forward guidance on rates, saying they would remain at “present or lower levels” until the inflation outlook “robustly” converges with the bank’s target inflation rate of near but just below 2%. Previously, the ECB said it intended rates to remain at present or lower levels through the first half of next year.

The ECB also made adjustments to its targeted long-term refinancing operations to further encourage lending and, in a bid to ease pressure on bank profitability from a lower deposit rate, announced it would introduce a tiered system that would exempt a chunk of excess reserves parked by banks with the ECB from the negative rate.

See: The ECB’s challenge: Pushing rates further into negative territory without wrecking eurozone banks

The decision drew the attention of U.S. President Donald Trump, who has previously accused the ECB of working to undercut the dollar. On Thursday, he used the decision as an excuse to again bash the U.S. Federal Reserve via Twitter:


Donald J. Trump

@realDonaldTrump
European Central Bank, acting quickly, Cuts Rates 10 Basis Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports.... And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!

36K
8:13 AM - Sep 12, 2019
Twitter Ads info and privacy
16.7K people are talking about this
Asked about the tweet, Draghi responded that ECB policy makers “do not target the exchange rate, period.”

Read: Trump complains ECB rate cut will hurt U.S. and Mnuchin doesn’t disagree

The euro EURUSD, +0.5995% fell to a two-year low versus the U.S. dollar in the wake of the decision, but later rebounded following a round of U.S. economic data and after a news report said Trump administration officials were weighing an interim trade deal with China. The pan-Euroepan Stoxx 600 index SXXP, +0.20% was up 0.2%.

U.S. stocks pushed higher, with the S&P 500 SPX, +0.59% up 0.5%, while the Dow Jones Industrial Average DJIA, +0.52% rose around 110 points, or 0.4%.

The bond-buying decision sent European bond yields sinking, dragging on U.S. Treasury yields. But yields soon rebounded into positive territory as trade-deal hopes appeared to take center stage. Yields and bond prices move in opposite directions.
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Old 09-12-2019, 02:46 PM
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Investing is now a game of musical chairs, deciding which asset class gets inflated next by all the free money. Or cut the head off the chicken if you ascribe to the South Park version.
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Old 09-13-2019, 03:05 PM
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https://www.wsj.com/articles/ecb-lau...te-11568289016

Quote:
ECB Launches Major Stimulus Package, Cuts Key Rate
Move was aimed at insulating the eurozone’s wobbling economy from a global slowdown and trade tensions

Spoiler:
The European Central Bank cut its key interest rate and launched a sweeping package of bond purchases Thursday that lays the groundwork for a long period of ultraloose monetary policy, jolting European financial markets and triggering an immediate response from President Trump.

The ECB's pre-emptive move was aimed at insulating the eurozone's wobbling economy from a global slowdown and trade tensions. It is the ECB's largest dose of monetary stimulus in 3 1/2 years and a bold finale for departing President Mario Draghi, who looks to be committing his successor to negative interest rates and an open-ended bond-buying program, possibly for years.

But the move triggered opposition from a handful of ECB officials, according to people familiar with the matter, while leaving key practical questions unanswered. Primarily: How long can the ECB keep purchasing bonds without significantly enlarging the pool of assets it can buy? Some analysts estimated it might be less than a year.

Investors initially cheered the surprise move as they anticipated the return to bond markets of an 800-pound gorilla, sending the euro down against the dollar and bidding up the prices of eurozone government debt. But those gains later reversed as Mr. Draghi highlighted divisions within the ECB's rate-setting committee over its future course.

In a tweet, Mr. Trump wrote that the ECB was "trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports." The Republican president has repeatedly criticized the Federal Reserve for being less aggressive than the ECB.

The ECB joins central banks around the world, including the Fed, that have been cutting interest rates in recent weeks amid a bitter trade dispute between the U.S. and China, a fall in trade volumes and a slowdown in global growth.

Second-quarter figures released Thursday by the Organization for Economic Cooperation and Development showed year-to-year economic growth in the Group of 20 leading economies was at its weakest since the start of 2013.

The Fed is expected to cut its key interest rate by a quarter percentage point next week, following a similar cut in July, its first since 2008. The ECB's move ramps up pressure on the Fed to follow suit.

The Fed rate would still be far higher than the ECB's, highlighting the divergence in economic fortunes between Europe and the U.S., with the Fed having less a need to boost growth for the stronger U.S. economy.

The ECB said it would cut its key interest rate by 0.1 percentage point, to minus 0.5%, and buy 20 billion euros ($22 billion) a month of eurozone debt starting in November, relaunching a so-called quantitative easing program that it only phased out in December.

The new QE program is expected to "run for as long as necessary," and only to end shortly before the bank starts raising interest rates, the ECB said.

The ECB also promised not to raise interest rates "until it has seen the inflation outlook robustly converge" with its target of just below 2%. Thursday's cut was the ECB's first since March 2016.

"Mario Draghi delivered a more aggressive easing package than most observers expected, and one of the best outcomes possible in the current political context," said Frederik Ducrozet, an economist with Pictet Wealth Management in Geneva.

Mr. Draghi said at a news conference that the ECB was reacting to a longer-than-expected slowdown in the eurozone and persistently weak inflation. "We still think that the probability of a recession in the euro area is small, but it has gone up," Mr. Draghi said.

The eurozone economy's growth has slowed to less than 1%, half the pace of the U.S. Europe has been hit hard by international tensions around trade because of its reliance on exports, with Germany -- the region's economic powerhouse -- particularly vulnerable. The bloc also faces the possibility of a disorderly exit from the European Union by the U.K., a prospect that could seriously disrupt business and finance.

Crucially, ECB officials were divided over the decision to revive QE. That stimulus program is particularly contentious in parts of Northern Europe due to concerns that it subsidizes spendthrift governments in the south of the region.

Reflecting those divisions, officials decided not to enlarge significantly the pool of assets the bank can buy -- though it did expand the kinds of corporate and mortgage bonds it can purchase. Without changing rules that prohibit the bank from buying more than a third of any government's debt, Mr. Ducrozet estimated that the ECB can continue its bond purchases for only 9-12 months.

At least five officials on the ECB's 25-member rate-setting committee opposed the decision to restart QE, including the governors of the Dutch, French and German central banks, people familiar with the matter said. Two members of the ECB's executive board -- Sabine Lautenschlaeger and Benoit Coeure -- also opposed the move, the people said.

Mr. Draghi said, "There was no appetite to discuss limits, because we have the headroom to go on for quite some time without raising the discussion about limits."

Some have questioned whether the fresh shot of stimulus will succeed in protecting the eurozone economy from an international trade war that shows little sign of abating. With borrowing rates in the eurozone already exceedingly low, the economy won't benefit much from the latest moves, Mr. Draghi's critics said.
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Old 09-13-2019, 04:05 PM
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Striking in Draghi's announcement is that there was notable objection from France, Germany, Austria and the Netherlands.

Like I said, the beatings will continue until morale improves. Hell, at this point they might as well print money and buy literally everything and then get a law passed that says prices can NEVER fall and must rise by whatever percentage the ECB wants.
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Old 09-19-2019, 03:31 PM
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https://www.bloomberg.com/news/artic...negative-rates

Quote:
BlackRock’s Wiedman Joins Schwarzman Blasting Negative Rates

Negative rates ‘poisoning financial systems,’ Wiedman says
Such rates look like long-term economic feature, Gundlach says
Spoiler:


Mark Wiedman, head of international and corporate strategy at BlackRock Inc., sounded an alarm about negative interest rates on the day the Federal Reserve lowered its benchmark.

“We’re slouching toward the U.S. moving into negative rate territory,” Wiedman said at the FT Future of Asset Management Summit in New York Wednesday. “Negative rates are corroding and poisoning financial systems.”

Wiedman joined Steve Schwarzman and Jeffrey Gundlach in stressing the harm of negative rates to banks and the economy. Fed policy makers lowered their main interest rate today for a second time this year while splitting over the need for further easing, caught between uncertainty over trade and global growth and a domestic economy that’s holding up well. The benchmark rate was lowered by a quarter percentage point to a range of 1.75% to 2%.

Schwarzman commented earlier on negative rates, saying they hinder economic growth by hurting the ability of banks to lend.

“My strong view is I don’t think it makes any sense whatsoever,” Schwarzman, the founder of Blackstone Group Inc., said at the Economic Club of New York. “Why would I take my money and pay somebody to take it? It’s hard enough to make it. I really just don’t understand the theory behind negative interest rates.”

Gundlach, chief investment officer of DoubleLine Capital, said negative rates look like they’re becoming a long-term economic feature rather than a short-term novelty.
“Now people seem to think that negative interest rates could be with us longer than they initially anticipated and they’re starting to really think about maybe we should make some changes in our asset allocation to kind of side step what could be a prolonged period of negative interest rates,” Gundlach said during a webcast Tuesday. “I’d say that’s probably a wise thing to factor in, but it misses the point that it’s also fatal to the banking system over the long term and the long term does arrive.”
Wiedman agrees that once an economy commits to negative rates it’s hard to escape them. He said the lesson from European and Japanese forays into negative rates has been “when you’re deep in a hole, keep digging.”

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