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Will we see negative interest rates in the US?

Interest rates in Europe on a variety of debt instruments actually reached negative levels this year, a bizarre economic environment with a lasting impact on the Eurozone’s economy. Essentially this means that investors in debt instruments are receiving less than their original investment over time.

The reason is simple: to encourage spending and ward off deflationary concerns. It’s a case of basic supply and demand – investors seeking a safe haven for their money invest in bonds. As demand grows, interest rates drop. Ideally, the rate would bottom out at zero, but with a heavy demand for safety, debt rates turned negative instead. Adding to the demand is the potential for currency appreciation. Even if the debt instrument returns a negative yield, the inherent currency could appreciate relative to the euro creating a gain overall for the investor.

The state of the US economy and bond yields

One of the biggest concerns for US investors is whether the atmosphere of negative yields will spill over into the domestic economy. The results for the first quarter in 2015 were disappointing, but inclement winter weather was partially blamed for the lackluster data. Economists believe the rest of the year should show a robust and growth oriented economy.

Yields on US debt instruments are still near all time lows, but the Federal Reserve has made several statements this year that indicate a rate hike is very likely to happen. While the European Central Bank (ECB) is prepared to begin a quantitative easing program intended to stimulate growth, the Fed officially ended its program late in 2014. It’s very unlikely that the US will actually see negative interest rates. Evidence suggests that US interest rates may currently be as low as they’re going to be before heading back up again later this year.

One major impact that negative rates would have in the US that makes it even more unlikely is the fact that consumers would essentially be paying banks just to hold their money. It’s a situation that the Fed wouldn’t let happen as consumers would simply hoard cash at home rather than make deposits. If that were to occur, it could create a liquidity crisis and halt lending activity.

As the US economy continues to gain strength, interest rates will rise as the demand for investment increases. For the US, negative yields won’t be a concern.

Eventually, How You Survive the Recession Depends on Your Financial Intelligence

MoneyI once asked by my reader in my other blog – When do you think the recession will end, and how?

I really am having a hard time to answer the question. So may opinions from experts and public, as well.

To tell you the truth, I can’t imagine how the recession will end, and when will it eventually ends.

Some experts say that the recession will peak within 2 or 3 years, and things will improve gradually from there – so, rough road ahead.

Regarding how the recession will end, here’s an interesting estimate – According to this article, the average recession lasted for 10.8 months. Therefore, according to the data, on average, the recession should end last November 2008, and the longest would probably ended on April 2009.

Not exactly the case, in my opinion. Why?

Negative sentiment drive today’s recession more than before

I think that today’s recession might not be your typical recession. The emotional turmoil is as bad as the economic turmoil, in such a way that people left with unsecurity, uncertainty and negative thinking.

Even though the economy is supposedly rebounded on November 2008, the economic downturn inertia will lengthen the recession, even beyond what’s estimated as the long recession mentioned in the article above, April 2009.

As a non financial expert, but a self-made student of human behaviour, I view the recession will go well over April 2009, and will reach the peak on mid or late 2010.

I’m not sure, but neither the expert.

The best survival tool: financial education

Regarding how the recession will end, my answer would be this:

As everything in life – such as the ripple in a lake decreases when the wind speed decreases – after the panic, buzz and negative sentiment sustain themselves in people, the recession will gradually peaked and the economy will rebound – all with viral effects, as sentiment is contagious; The positive outlook of the economy will gradually, in itself, improve economy situation.

The question: How to accelerate economy sustainability?

The answer: As people start to gather themselves and start to learn from the situation, their financial intelligence increases gradually, and the new understanding will accelerate economy recovery – eventually.

The availability of money guides and money information, especially online, will help people to learn better, faster.

Nowadays, the phrase “Time is money” has never been this true before – the faster people learn, the sooner recession will end – the knowledge will set you free.

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