Gold Daily and Silver Weekly Charts - Non-Farm Payrolls On Friday

"The existence of cash — a bearer instrument with a zero interest rate — limits central banks’ ability to 'stimulate a depressed economy.'  The worry is that people will change their deposits for cash if a central bank moves rates into negative territory."

Financial Times, The Case For Retiring Another 'Barbarous Relic'

Since the Nikkei bought the Financial Times earlier this year one wonders if they are able to interpret the real meaning of their own editorial policy.  Could anything be more blatantly repugnant than the above?

'Negative rates' is a euphemism for the slow but steady confiscation of all savings, a broader 'bail in.'  It is designed to drive people into financial paper assets and consumption. It is all about the elimination of safe havens, of places to hide from gross incompetence and wealth transfers.

Negative interest rates are the signature moment in the decline of a republic and the rise of corporate feudalism.   They take our wealth at no cost or effort for themselves, and lend it back to us at interest and without risk, being assured of a continuing supply of subsidy from their central Bank.

There will be quite a bit of economic news at the end of the week, including a Non-Farm Payrolls report for the month of August.

Gold is in an interesting position here, as can be seen on the chart.

The Bucket Shop was quiet, except for a small but steady stream of bullion out of their warehouses for both metals.

Have a pleasant evening.

Alan Blinder: The Fed Should Pay the Banks Negative Interest Rates on Reserves

As I said to the reader who forwarded this, 'you have no idea how much this admission by Blinder means to me.'

This is not the first time he said this, he is now repeating it again more publicly and for the record. That means he sees what is happening and is worried about it. And it is something that is probably not being discussed in Davos, except behind closed doors, and especially not with the financial media's Wall Street spokesmodels.

This is a particular moment to be savored, because at the time that the Fed started paying interest on bank reserves it held, there was quite a bit of hoopla and browbeating by 'professional economists' and some NY Fed people, and their media mouthpieces, about my own interpretation of what it meant, and how those reserves would function, and what they would and would not do. And as I recall a few brave politicians were also rasing the same concerns, only to be beaten down by 'experts.'

The Fed has been pussyfooting around the credibility trap of their own policy failures for quite some time.  This is hard for an academic to do, because so much of their personal currency is based on 'reputation' and the back-scratchers club.

So now the hacks can argue with Alan Blinder, former Vice Chair of the Fed. They may disagree with his policy judgements, but they might find it harder to dismiss his argument with the usual 'he doesn't understand the banking system' approach which they tend to use when they wish to silence dissent.  I took quite a bit of flack for this on the economic blogs comment sections and was fairly disgusted by what looked like a disinformation campaign.

I am no great fan of Blinder, and his own rationalisation of the Fed's actions and the bailout are disturbing. But I will use what I can get and he explodes at least one of the monetary myths that a number of people had questioned, only to be shoved aside.  The actions of the Fed have been all about bailing out the Banks, and in their fear and greed the politicians have gone along with them, both in the US and in Europe.

Paying no interest, or even negative rates on reserves, makes some sense, in motivating the banks to not to sit on their cash and gamble with it in the markets, and prop up mismarked assets, but to find some productive uses for it.

My only concern is that in this currently corrupt system the failure to pay interest or to even charge a fee for it would drive even more 'hot money' into financial asset bubbles in the US and overseas rather than productive loans and real investments in support of growth and recovery and real wages.  This is one of the great drawbacks of the repeal of Glass-Steagall. 

On the bright side, negative interest rates, including negative real rates, are a stimulus for gold which is money in its own right and on its own standing, as my friend Hugo Salinas-Price is often wont to remind us.  And this admission by Blinder gives me the ability to feel even more confident in the rest of my forecasts, provided the government does not do something stupidly draconian out of panic.  Gold is going to go significantly higher in price.  The big players are already positioning for it.

And if these negative rates were applied to what is paid to individual savers and depositors, then that would be even more of a travesty that what is occurring today as prudence and honesty are penalized by policy originating from the monied interests and their public servants. This is a real concern given the lack of serious reform of the system.

It would be like strafing the lifeboats, which is something some financial engineers would do if given the opportunity and the motivation in support of their increasingly convoluted and self-serving policy errors.  

CNNMoney
Making the Case for Negative Interest Rates
By Allan Dodds Frank
25 January 2013

Former Fed official Alan Blinder talks about how to fix the economy, where the next crisis will come from, and how scared investors should be.

FORTUNE -- The nation's biggest banks have been nursed by the Federal Reserve way too long, former Federal Reserve Vice Chairman Alan S. Blinder said Thursday as he kicked off the tour for his new book, After The Music Stopped: The Financial Crisis, The Response and the Work Ahead.

The Federal Reserve, says Blinder, should stop paying interest to banks for their overnight deposits and should move to charge them for parking money. He says if the Fed set negative interest rates for overnight deposits – in effect charging a fee – banks would have to figure out better ways to make money and one obvious alternative would be to lend more to customers.

The book, the 20th by the liberal Democrat economist who is the Gordon S. Rentschler Memorial Professor of Economics and Public Affairs at Princeton University, defends the U.S. government bailout prompted by the financial crash in the fall of 2008 as a job well done, while critiquing it as a misunderstood rescue that could have been done more cleanly. Blinder tries to adopt the perspective of middle class Americans who remain angry that the big banks stayed afloat with public money while doing little to help their retail customers during the bail-out...

Sparing no sitting ducks, Blinder blasts former President George W. Bush, former Treasury Secretary (and Goldman Sachs (GS) co-CEO) Henry "Hank" Paulson and their successors – President Barack Obama and Treasury Secretary Timothy Geithner - as communications failures whose collective silence about what was really going on amounted to public disservice. (And where wasMr. Blinder when all this was happening, from Greenspan to Bernanke? - Jesse)

While citizens fail to understand the positive role the Federal Reserve played [sic - literally], Blinder also says people have a right to be angry about the ongoing practice that encourages banks to keep their deposits out of general circulation.  (The Fed's failure as bank and market regulator is epic - Jesse)

"I have been advocating – and have not yet quite convinced (Federal Reserve Chairman) Ben Bernanke, although I am still working on it - that the Fed should lower, first to zero and then probably to negative, the interest rate it pays banks for holding reserves at the Fed," Blinder said Thursday. "When I want to be polemical about it, I say things like: 'My bank pays me one basis point on my checking account. Why are you paying my bank 25 basis points on their checking account?...'"

Bank Of New York Mellon To Pay Negative Interest Rate for Very Large Cash Deposits

The Bank of New York Mellon will begin paying negative interest rates on very large cash savings deposits, over $50 million, this week.

As an aside, we wonder why the Fed does not similarly reduce the interest they pay on bank reserve deposits with them to zero from the current .25 percent? 

It should be noted that Bank of New York Mellon has a current dividend yield of 2.06%. Are those dividends taxable? Will depositors be able to claim a lost on the negative interest they pay to BNY Mellon?

Not a sign of deflation if you understand it, although I am sure some will tease that conclusion out of this. Negative real interest rates are the hallmark of quantitative easing, which are artificially low interest rates and the creation of non-organic money, printing paper if you will. It is just they are nominally positive on the longer end of the curve. When they go nominally negative on the short end for a sustained period, you know we are not in Kansas anymore, Toto.  

This is a clear sign of a topsy turvy financial system, of dysfunctional markets, of predatory banking, distorted risks and returns, and a broken economy with negative real interest rates that are likely to become...more negative.  The US can get by with this because of who they are, and what the dollar represents to world trade.

There is a major bear raid on gold today, capping the earlier flight to safety. I think this is more indicative of extremes at the short term in the trends of stocks, bonds and dollars. But the Non Farm Payrolls are tomorrow, and the market is watching them and the situation in Europe rather nervously.

Remember this story the next time someone says that the problem with gold bullion is that it pays no interest, and there are costs to store it.

If the Fed can create it, they can also confiscate it, and transfer it to their friends, creating winners and losers, and sometimes almost at will.  And that is the problem with fiat money and the banking cartel that surrounds it.

WSJ
BNY Mellon to Charge for Some Deposits Above $50 Million
BY LIZ RAPPAPORT

Bank of New York Mellon Corp. is preparing to charge some large depositors to hold their cash, in the latest sign of the worries roiling global markets.

The biggest U.S. custodial bank said this week in a note to clients that it will begin slapping a fee next week on customers that have vastly increased their deposit balances over the past month.

The bank cited the massive dollar deposits it has received over recent weeks, as investors and corporations retreat from financial markets amid Europe's debt crisis and the recent debate over U.S. government ...

Short Term T Bills Go Negative

Too many dollars chasing too few opportunities because of mispriced risk, so they are piling into short Term Treasuries again.

Grab something solid and hold on tight. Could be rough seas ahead.

Three Month T Bill Rates Go Negative On Concern Risk Rally Overdone
By Cordell Eddings

Nov. 19 (Bloomberg) -- Treasury three-month bill rates turned negative for the first time since financial markets froze last year on concern that the rally in higher-yielding assets has outpaced the prospects for economic growth.

Investors were willing to pay the government to hold their money as stocks slid amid speculation the eight-month, 68 percent rally that drove the valuation of the MSCI World Index to the most expensive level in seven years already reflects forecasts for a 25 percent rebound in corporate earnings next year. Federal Reserve Bank of St. Louis President James Bullard yesterday said experience indicates policy makers may not start to increase interest rates until early 2012.

“As long as the economy is stuck in a rut and there are not viable fixed-income alternatives, they will buy Treasuries,” said George Goncalves, chief fixed-income rates strategist at Cantor Fitzgerald LP, one of 18 primary dealers that trade directly with the Fed.

Rates turned negative on some bills maturing in January, according to Sarah Sobeck, a Treasury trader at primary dealer Jefferies & Co. The three-month bill rate was at 0.0051 percent, the least this year. Six-month bill rates dropped to the lowest since 1958. Treasury bills turned negative last December for the first time since the government began selling them in 1929 as investors scrambled to preserve principal and were willing to sacrifice returns in the months following the collapse of Lehman Brothers Holdings Inc.

The two-year note yield fell five basis points to 0.70 percent at 4:24 p.m. in New York, according to BGCantor Market Data. The 1 percent security due October 2011 rose 3/32, or 94 cents per $1,000 face amount, to 100 18/32. The yield touched 0.6759, the lowest since Dec. 19. It fell to an all-time low of 0.6044 percent on Dec. 17.

Don’t Dismiss

“Investors are preparing early for year-end and trying to ensure liquidity,” said Sobeck. “The move in the two-year resulted from the bid for collateral.”

Banks typically buy the safest maturities at the end of the year to improve the quality of assets on their balance-sheets.

Two-year yields rose yesterday following the comments from Bullard, who will be a voting member of the Federal Open Market Committee next year.

“The fact that he introduced the idea should not be dismissed as the ranting of a madman,” according to a report by senior economist Tom Porcelli and interest-rate strategist Christian Cooper at primary dealer RBC Capital Markets in New York. “Even the most bearish analysts weren’t talking about 2012 as a possibility. But the idea has just received credibility.”

Bullard’s comments followed a Nov. 16 speech by Fed Chairman Ben S. Bernanke in which he indicated that the central bank’s extended period of low borrowing costs may be even longer amid economic “headwinds.”

New Asset Bubbles

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said the “systemic risk” of new asset bubbles is rising with the Fed keeping interest rates at record lows.

“The Fed is trying to reflate the U.S. economy,” Gross wrote in his December investment outlook posted on the Newport Beach, California-based company’s Web site today. “The process of reflation involves lowering short-term rates to such a painful level that investors are forced or enticed to term out their short-term cash into higher-risk bonds or stocks.”

The central bank lowered its target rate to a range of zero to 0.25 percent in December and purchased $300 billion of Treasuries this year as part of its effort to lower consumer borrowing costs and support the housing market, the collapse of which triggered the worst slump since the Great Depression....