If they get rid of that quarter point, which by the way gives banks a guaranteed profit, that's going to force the banks to lend money. That would be a bold move.
Or if they were serious about bringing the interest down at the long end (the 30-year US Treasury Bonds), they might do what they've done before and that is to simply cancel the 30-year Treasury Bond auctions.
Why? Because when the Fed temporarily stops selling them, it creates what's called a "scarcity bid" in the 30-year Bonds and these Bonds will rally and increase their value. Hence the yields will come down.
Now since all long-term lending yields are fixed to the 30-year US Treasury Bonds, if you were serious about bringing down long term rates to provide further fiscal stimulus to the economy, temporarily cancelling the sale of 30-year Treasury Bonds is the way to do it. Also it is something the Fed has done in the past. That is another major tool they have left in their toolbox, but they really don't have much of anything else.
Also there have been rumors online about the so-called "bail-ins" of banks in the Euro Zone, primarily the Bank of Cyprus which converted 37.5% of deposits exceeding ï¿½100,000 into so-called "Class A" shares which means they're converting depositors' cash into equity, which is basically useless shares of a worthless bank. They're useless because they're not even really shares, but "restricted" shares, which means that the shares aren't even liquid. You can't even sell them.
So is this just a one-off for the Euro Zone? Or can Americans expect the same kind of treatment by US-based banks?
No, this isn't coming to the United States. This is simply the "European model" and despite what DieselBomb says - this is the template.
It isn't probable for the United States because it isn't necessary -- yet. It's really a necessity factor for the Euro Zone. Why? Because the Fed still has the ability to bail out the banks as the ultimate guarantor. FDIC, FSLIC, CIPIC -- those are just labels for insurance pools. The ultimate guarantor is the Federal Reserve. They still have the resources to bail out any US banks.
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* AL MARTIN, author of "The Conspirators: Secrets of an Iran Contra Insider," is an Independent Political-Economic Analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. He is also currently trading the commodity futures market day and night and has a teleconferencing service to facilitate transactions in the markets. This is a service for independent experienced traders.
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