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The Fed Wants to Test How Banks Would Handle Negative Rates

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Three-month Treasury bill rate falls to negative 0.5 percent

Very adverse scenario posits harsh worldwide recession

As interest rates turn negative around the world, the Federal Reserve is asking banks to consider the possibility of the same happening in the U.S.

Negative Interest Rates
In its annual stress test for 2016, the Fed said it will assess the resilience of big banks to a number of possible situations, including one where the rate on the three-month U.S. Treasury bill stays below zero for a prolonged period.

"The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities," the central bank said in announcing the stress tests last week.

In that particular simulation, the unemployment rate doubles to 10 percent, the same level it reached in the aftermath of the last financial crisis.
Three-month bill rates have slipped slightly below zero several times in recent years, including in September after the Fed delayed rate liftoff amid global financial market turmoil, touching a low of minus 0.05 percent on Oct. 2.

But in the stress test, banks would have to handle three-month bill rates entering negative territory in the second quarter of 2016, and then falling to negative 0.5 percent and holding there through the first quarter of 2019.

<snip>

http://www.bloomberg.com/news/articles/2016-02-02/rates-less-than-zero-is-bank-stress-fed-wants-to-test-in-2016

As if the Federal Reserve didn't know that raising interest rates would have an adverse effect on a weak economy. 

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David Stockman-We Are Nearing the End

Published on Jan 31, 2016

Former White House Budget Director David Stockman contends, “We are nearing the end. I think the world economy is plunging into an unprecedented deflation recession period of shrinkage that will bring down all the markets around the world that have been vastly overvalued as a result of this massive money printing and liquidity flow into Wall Street and other financial markets.”

On gold, Stockman says, “I think it’s more of an insurance policy and an option on the ultimate failure of today’s form of central banking. When, finally, the Keynesians, who are running all the central banks, when they are totally repudiated, I think gold will soar in value.”

 

 

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The only positive the banking industry has left is the capacity for debt and it's running out fast. Soon currency collapse. Well, actually digital currency collapse. That's the next Weimar dollar.

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