Saturday, October 3, 2015

An alternative to a bear market in stocks - NIRP

I have always felt that the Fed wanted to raise rates in large part to save pensions and insurance companies  Such institutions have always relied on long bonds as their base rate of return and then look elsewhere for additional returns to reach their target annual rates of return.

The Fed won’t/can’t raise rates or enough to help pensions and insurance companies.  Therefore the Fed is going to have to attempt to increase the income of these institutions with stock dividends and capital gains.  Also income from real estate rental income and capital gains.

If the Fed acts to do this, stocks may go to new highs.  As might real estate prices.

It seems like society, in its structure, is decrepit.  But the old and rickety may have at least one last hurrah in them.  NIRP, negative interest rates, would allow congress to significantly increase deficit spending with free money.  It would also reduce the burden of paying interest on the existing debt freeing up even more money for the government to spend.  Corporations would refinance their debt at lower interest costs.  Corporations would buy back stocks.  Those owning stocks would not want to sell them.  People would lose money in their savings accounts so would spend or invest the money instead of holding it.  People will refinance their debt thus giving them more money to spend.  Real estate would be financed with super low mortgages.  Some believe that NIRP will increase the availability of funds to loan because this is exactly what it appears happened when Sweden went NIRP a few months back.  At least so far.

So many would be so wealthy due to capital gains.  Unrealized capital gains of course.  And as long as people don’t all at once attempt to realize their gains, all is well.  Right?

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