The Fed and Negative Interest Rates strongly supports the Chairman of the Federal Reserve System in his common sense opposition to negative interest rates in the U.S. In the entire history of the U.S., interest rates on treasury debt has never gone negative.  For 48 hours in 2008-2009, t-debt sold for a very short time at 0.00%.  That was a very short time after the 2008 equity crash.  0.00 % IS NOT NEGATIVE.  Also, the Open Market Committee has strongly opposed negative interest rates. strongly supports the efforts of the Open Market Committee.

As I recently explained to an American banker, rising and lowering interest rates are not a good or bad thing.  It just involves which side of the trade you are on. Here is an example that everyone can understand.  Suppose you are in the business of lending money and have a surplus of money to lend ( think banks and asset management companies ). If interest rates rise 1%, you are happy because in the short run you can earn more money as interest is returned to you as profits.  If you are a medium sized company and are in dire need of capital, a 1% rate increase could make it difficult to place corporate bonds and would cost a small company more capital.

If you are the Government of the U.S. and you presently have a total National Debt exceeding $ 25 TRILLION, you are happy to see interest rates decrease so you can finance the U.S. debt at a lower cost.  This is an idea that obviously has a great appeal to Donald Trump.  But like all coins, it has two sides.  If you are one of about 30 Million U.S. Citizens and you conservatively keep capital in a U.S. Bank, you are unhappy that interest rates decrease because you have your savings earning less !

While Richard Nixon was President, every dollar printed by the Controller of the currency was backed by gold held at Fort Knox.  Nixon announced on August 15, 1971, that the dollar was NO LONGER CONVERTABLE TO GOLD AT $35/OUNCE.  Nixon, Treasury Secretary Connally, and Arthur Burns had little idea what would happen and their note pads had few projections that should have been computed.

Today the dollar floats on currency markets.  It has been a very strong currency and with common sense from the Fed, the dollar could remain a strong world currency. Presently huge amounts of gold remain very secure in Fort Knox.  Fort Knox is the world’s largest supply of gold. Presently, the Fed can not buy gold for the U.S. on the open market and place it in Fort Knox.  Presently, the Fed can not sell gold from Fort Knox and use the proceeds to finance the U.S. National Debt.  HOWEVER, every ounce of gold in Fort Knox is the property of the U.S. Government and is in effect owned by the citizens of the U.S.

Congress can pass legislation that allows the Fed to buy and sell Gold on the open market in behalf of the American People.  I WOULD RATHER SEE THE FED BUY AND SELL GOLD FROM FORT KNOX ON THE OPEN MARKET RATHER THAN ALLOW OUR TREASURY DEBT TO GO NEGATIVE.  The previous statement is a very hard statement, and I hope that it never becomes necessary to add this tool to the Fed’s many tools to regulate the U.S. money supply.

The U.S. Congress has appropriated TRILLIONS of dollars to “regulate” the impact of the COVID-19 Virus.  If the Fed can not prevent negative interest rates in the U.S., it is quite possible that equity markets in the U.S. could crash and a serious world depression could follow.  Since becoming President in 2017, I believe that Mr. Trump has made wise and common sense economic decisions that benefit all of the American People.  However, I most respectfully encourage Mr. Trump to understand that his appointed Chairman of the Fed is correct and to support Chairman Powell in his common sense actions.

R. Van Conoley

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