What Donald Trump Doesn’t Understand About Negative Interest Rates
Author: Greg Valliere
September 11, 2019
GET OUTSIDE OF THE WASHINGTON BELTWAY and talk with real voters, and you get an earful on several topics, including a consistent refrain that interest rates are too low. Most Americans are conservative investors who prefer to save — but the saver class is increasingly frustrated by low yields.
AS EVERYONE IN THE FINANCIAL SERVICES INDUSTRY KNOWS, the quest for higher yields is pervasive, so we think the idea of negative interest rates is politically toxic. Yet Donald Trump bashed “boneheads” at the Federal Reserve yesterday, calling on them to move quickly to zero percent — or negative — rates.
THERE’S NO CHANCE that rates in the U.S. will approach zero any time soon, but the mere injection of this idea into the debate by Trump is bound to upset senior citizens and other savers who want higher rates. This just ratchets up the economic uncertainty, a constant theme in this administration.
THE IDEA OF ISSUING 50-OR 100-YEAR BONDS is different; it might reduce U.S. debt servicing burdens (over $500 billion in this fiscal year) and as many Keynesians now believe, infrastructure outlays and other spending could be financed with ultra-low rates. We think a 50-year bond could be unveiled later this year.
BUT TRUMP’S DESIRE TO RESTRUCTURE DEBT by getting to zero percent would invite all sorts of unintended consequences — intensified fears of recession, a potential aversion to U.S. investments by foreigners, the threat of an inflationary bubble in real estate and other interest rate-sensitive sectors.
OUR FOCUS THIS MORNING is on the political ramifications — senior citizens vote, and they are very vocal: they want higher rates, not lower. Someone needs to tell this to Trump or he could lose altitude with still another crucial demographic group.
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TONIGHT’S DEBATE IN HOUSTON probably won’t have high ratings, but it’s worth watching on several fronts: Joe Biden and Elizabeth Warren will be on the same stage for the first time in the campaign; there will be differences on issues like guns and health reform; and someone in the second tier — Andrew Yang perhaps? — could have a breakout moment.
THE NOMINATION IS STILL JOE BIDEN’S TO LOSE but we’ve argued for months that his gaffes and lack of energy eventually may doom his campaign. Politics isn’t always fair; the media harps on Biden’s minor gaffes, even though Trump’s transgressions are far more egregious. This infuriates Biden’s advisers, who are convinced that the media is biased against him.
NEVERTHELESS, THE MEDIA WILL FOCUS AFTER THE DEBATE on Biden’s ability to counter-punch, and a genuine gaffe — or inability to find the right word — will be amplified. Perhaps, in this pressure cooker, another candidate could break out; when we talk with young people, they express real interest in Yang and Pete Buttigieg, two unlikely candidates in these uncharted waters.
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