Interest Rates Go Negative, T Bills Go to Zero, Stocks Go to ???

And Comments on the Financial and Economic News

[Editor’s note:  The Dismal Political Economist has only a few witty, sarcastic or clever comments on the current state of world finance and economies.  Given this economic environment , he just not that witty or clever.]

In what will likely be a historic first, interest rates on some bank deposits will be negative.  Bank of NY/Mellon has announced that they will be charging a fee on large deposits.

BANK NY/ Mellon
Ask them nicely and pay them interest and
you can have an account with them

.

The big U.S. custodial bank said this week in a note to clients that it will begin slapping a fee next week on customers that have vastly increased their deposit balances over the past month.

And as a result

           

The cost of borrowing overnight in this market tumbled below zero Thursday, after starting the day at around 0.08%.

So far banks will not charge regular customers interest for holding their money, but several banks have said they think it is a great idea, and may start doing this without telling depositors.  “It will be a nice surprise in their monthly statement” a spokesperson said.

Treasury Bills, or T Bills are short term borrowings by the U. S. government.  They do not pay interest and so are sold at a discount to their mature value, like some savings bonds.  A one year T bill selling for $990;.00 and paying $1,000 at maturity yields about 1%.

The price of T Bills has been bid up on the open markets, so now they are selling at par or $1,000.  This means you loan the government $1,000, and get no interest and the government pays you $1,000 at the maturity of the loan.

Yields on many T-bills due later this month and in September are trading in a range of 0.003% to negative 0.003% Thursday. The benchmark three-month T-bill yielded 0.008%, tumbling from a recent peak of 0.12% on Monday

 People like the Editorial pages of the Wall Street Journal were sure that the federal deficit would push interest rates way up.  As Paul Krugman notes

The WSJ view was that federal borrowing would crowd out private spending by driving interest rates sky-high, that the bond vigilantes would destroy the economy

 Well one of these days interest rates will go up, and the next day the editors of theWSJ will say, “see, we were right those many years ago”.

The U. S. stock market plunged  on news from the possible  problems in Spain and Italy in Europe and on the expected weakness in the U. S. economy and on the actual weakness in the U. S. government.  This is a surprise to some because with Congress not formally in session many people figured that fact alone would have a positive influence on stocks.

The European Central Bank, their version of the Fed has been pursuing a policy of slowly raising interest rates to combat inflation, only to see huge problems develop with European banks.  Now the ECB is reversing course with a “Gee I guess we were wrong, sorry about that” statement.  That’s why those people get paid the big bucks.

A new NYT/CBS Poll found that approval of Congress is at an all time low because of its handling of the debt ceiling and economic issues.  Presumably the number cannot go below zero, but then The Dismal Political Economist never thought interest rates could go below zero and he was wrong there, so it may be that on a scale of 0 to 10 the next approval rating for Congress could get to minus 2.