Subject: David Hale Global Economics: Negative on Negative Interest Rates
From: "Lyric Hughes Hale" <[email-masked]>
To: "R. Hunter Biden" <[email-masked]>
Date: Fri, 28 Oct 2016 13:06:35 -0700 (PDT)

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Dear R. Hunter,

Although US election news is overhanging all today, there are global 
economic issues driving key policy trends that require equal focus. 
Foremost among these are negative rates, now affecting some 15% of 
deposits worldwide. Underlying questions include what is the role of 
capitalism, when the cost of capital is free? Capitalism began as a way 
to finance manufacturing and trade. Looking forward to a world of 
individually based 3-D on-demand manufacturing and fintech, what is the 
future of investing and the role of financial institutions? The times, 
they are a changin'. Attached please find a special DHGE report by Dr. 
Robert Madsen on negative interest rates. Madsen disputes the idea that 
monetary policy has run its course, and talks about "the monetary policy 
that dare not speak its name" currency depreciation which could become a 
competitive downward spiral. As has been reported recently, some feel 
that Chinese purchases of Japanese government bonds, as they unwind 
their US dollar debt, is behind some of the unexpected strength of the 
yen. Here is a preview of Madsen's paper:

For decades economists thought that zero represented the lower bound on 
interest rates. Over the last few years, however, market forces and 
monetary policy have conspired to drive rates in many countries below 
that threshold. Now a quarter of the world economy is overseen by 
central banks with negative short- term interest rates and well over 10% 
of the world's bonds trade at yields below zero. Furthermore the process 
has not run its course inasmuch as several monetary authorities have 
declared their intention of pushing further into this terra incognita. 
This matters for two reasons: what negative rates reveal about the state 
of the underlying global economy, and the risks that those rates pose 
for economies, exchange rates, and financial markets going forward. 
Those risks are likely to rise substantially over the next couple of 
years and could spread to the United States as well as Europe and Japan.

"If it were possible to take interest rates into negative territory I 
would be voting for that." --Janet Yellen, February 2010

With all best wishes,

Lyric Hughes Hale

David Hale Global Economics, Inc.

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