Welcome to 0%

posted by Nima

December 17, 2008 · Posted in Monetary Economics 

Today the Fed, in a move of futility, dropped discount rates to 0%-.25% ; another way of saying 0%.

This of course has little effect in the light of near 0% yields for short term Treasury Bills on the open market.

The yield for the Treasury Bill even turned negative recently for a short moment.

The re-iteration by the Fed that it will use all tools possible to “save the world” certainly precipitated some market reactions:

  • 10 yr Treasury Notes soared yet another day and now yield a historically low 2.23%. Treasuries have pretty much developed as expected.
  • 1 month Libor is now at .88%. Good news for everyone who has an adjustable rate mortgage
  • Stocks soared, the S&P 500 rose by 4.77% – a purely inflationary rally as can be seen in a significant rise in gold, silver, and related stocks: NEM rose by 7%, PAAS by 13%. Like I said I am still bullish on silver
  • The Dollar dropped sharply against the Euro, the Pound, and the Yen – my premonition from September unfortunately turned out to be true – I only see it dropping further from hereon, unless the central banks of Europe, Great Britain, and Japan join the hyperinflation course

The effect on the interim money supply data will be reported in this blog once it is published. (November month end was the last one.)

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Comments

One Response to “Welcome to 0%”

  1. pastafiend on December 17th, 2008 2:12 pm

    Hellooo liquidity trap. Is this situation with the dollar similar to what happened to Japanese yen?

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