Zero

[ori]

So now that the Fed has hit bottom with its Federal Funds rate - what else will they be able to do if need be? They already are inflating the money supply as well... It seems they really fear Deflation more than anything else...

WASHINGTON (AFP) — The Federal Reserve slashed its base lending rate Tuesday from 1.0 percent to virtually zero, saying its target federal funds rate would be a range of zero to 0.25 percent.
The unprecedented low rate announced by the Federal Open Market Committee is aimed at fighting off deflation and a crippling global credit crunch.
Additionally, the Fed said it would take other steps to stimulate lending and economic activity, including large purchases of mortgage securities to help unblock credit.


(...)


The Fed's actions come amid growing expectation of falling prices that could set off a deflationary spiral hard to counter.
The extraordinary actions on the bond market underscore the conundrum for the central bank.
Yields on some short-term Treasury bills became negative for the first time -- meaning investors are willing to give up a bit of their capital for the safety of US government debt in view of a deflation threat.
At the same time, the Treasury in the past week issued 30 billion dollars in bills at a rate of zero percent, highlighting the same fears.
The effective federal funds rate on the futures market has fallen near zero as well -- as low as 0.0625 percent -- despite the Fed target of 1.0 percent, because of the exceptional amounts of liquidity being pumped into the system.

 

[Mulholland]

So now that the Fed has hit bottom with its Federal Funds rate - what else will they be able to do if need be? They already are inflating the money supply as well... It seems they really fear Deflation more than anything else...

Many of people have said that the US is entering a liquidity trap very similar to what Japan experienced in the 1980's. This is one more piece of evidence proving that hypothesis. If the US stagnates nearly as much as Japan has then the world economy is going to languish as well.

 

[kronic]

It seems they really fear Deflation more than anything else...

Quantitative easing is the solution...or not. Deflation today, inflation tomorrow. I can't wait to see how much purchasing power the $ is going to lose in the years to come. Sadly, this will be felt in the the rest ot the world, too. At least, the US will inflate its way out of the debt that way...

The € is rising to worrysome levels again. It gained 15 cents back since its low at around 1.25 $ only 4 weeks ago.

 

[innonimatu]

Soon debtors will be paid to carry debt... oh, but they already are, inflation is higher that interest rates. Or is it? What will happen, inflation or deflation? And so economists argue... like the band in the sinking Titanic.

Too big to fail? No, not even states are too big to fail. The federal reserve better start gathering those helicopters, because that's the only thing they have yet to try, and the alternative is failure.

 

[QuoVadisNation]

At the risk of sounding incredibly selfish and narrow-minded, what does this all mean for our student loans? (assuming, you already got the loan to cover the amount you still have to pay and assuming there aren't clauses that still haven't been held unconscionable).

 

[Godwynn]

At the risk of sounding incredibly selfish and narrow-minded, what does this all mean for our student loans? (assuming, you already gotten the loan to cover the amount you still have to pay and assuming there aren't clauses that still haven't been held unconscionable).

I don't know about student loans, but are they variable interest? Sallie Mae's website states that they no longer consolidate student loans, so you may be stuck with the rate you have.

 

[QuoVadisNation]

I'll have to check it out myself after finals. It'd be worth assessing what I'm getting into based on all this.

 

[Archbob]

I thought most student loans were fixed.

 

[innonimatu]

At the risk of sounding incredibly selfish and narrow-minded, what does this all mean for our student loans? (assuming, you already gotten the loan to cover the amount you still have to pay).

My guess is that it means nothing yet. So far the money printed is being given only to banks. It would be wiser to just use it to cancel most of the existing loans (a state-sanctioned default and high inflation, really), but that way the banks would lose much of their importance.
If interest rates really go to zero (but they won't, just the money given to banks will carry that rate) people would theoretically be able to repay their debts instead of struggling to just service the interest. Provided they still had a job and disposable income... I guess that's the plan, but it's too little, too late.

 

[Cutlass]

Deflation is more to be feared then inflation. But I remain unconvinced that there will be any significant inflation in the foreseeable future.

 

[Zelig]

I thought most student loans were fixed.

Here at least, you can choose whether you want a fixed loan at prime+3.0%, or floating at prime+0.5%.

 

[Integral]

Bernanke's big fear right now is sustained deflation. Regarding the effectiveness of the central bank once nominal interest rates are at the zero bound, he made a speech about non-traditional monetary policy in 2002. There was a followup speech in 2004 that emphasized the role of monetary policy in the Great Depression.

EDIT: and according to the St. Louis Fed, the effective federal funds rate has been around 25bps or lower since early November.

 

[kramerfan86]

Make 'em less than zero, give people money for loaning money from you

 

[Cutlass]

Is a non-positive nominal interest rate even possible? I didn't think it was.

 

[Souron]

Not at all surprising, about the Fedral funds rate. But it means the Fed is doing all it can, and it isn't enough.

The "large purchases of mortgage securities" is a little worrying. If not done right, it can do more harm then good.

At the risk of sounding incredibly selfish and narrow-minded, what does this all mean for our student loans? (assuming, you already got the loan to cover the amount you still have to pay and assuming there aren't clauses that still haven't been held unconscionable).

It is easier to get new low rate loan. Or at least at a lower rate than if the fed didn't lower the Federal Funds rate.

 

[Shylock]

Is a non-positive nominal interest rate even possible? I didn't think it was.

No. That's a silly idea. Our job as citizens is make the rich richer, not the other way around.

 

[innonimatu]

Is a non-positive nominal interest rate even possible? I didn't think it was.

It would be new, but we're seeing a lot of new things...

I'm still expecting a forex storm by February, coupled with bank collapses. When the end of year numbers are released all hell will break loose. Sweeping nationalizations or a huge and long economic collapse, take your pick.

 

[Supermath]

EDIT: and according to the St. Louis Fed, the effective federal funds rate has been around 25bps or lower since early November.

In which case the lowering of the rate just states the obvious.

 

[Buzz Killington]

It would be new, but we're seeing a lot of new things...

I'm still expecting a forex storm by February, coupled with bank collapses. When the end of year numbers are released all hell will break loose. Sweeping nationalizations or a huge and long economic collapse, take your pick.

Doomsday is always around the corner and yet it never comes.

 

[Archbob]

Is a non-positive nominal interest rate even possible? I didn't think it was.

No, why the hell would anyone loan you money with a negative interest rate? That doesn't make sense.