Tuesday, October 6, 2015

Quick post: 10.6.15; Negative rate 90 day TBills

Ann Barnhardt tweets that the 90 day TBill may go to negative rates soon.  If that's happens, it is an inverted yield curve on the short term side.  If it fully inverts, it would mean that the entire yield curve goes below zero.  Most unlikely, but that also means that to raise Fed Funds rate any at all runs the risk of fully inverting the yield curve.  Significance?  Inverted yield curves almost always tend to accompany recessions.

The Fed is painted into a corner.  Can't raise rates and can't cut rates, unless you want to risk even more damage.  Why would this be damaging?  Because capital formation requires savings, and savings are eaten up by a negative yield, it means less capital formation.  Economic growth becomes more difficult, if not impossible.  Collapse could be inevitable.

The stock market rose yesterday.  The Dow was up 300 points.  Yeah, right.  Eat, drink, and be merry, for tomorrow we may be in the deepest doo-doo.


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