Coppola Comment:The Strange World of Negative Interest Rates (must read)

Coppola Comment: The strange world of negative interest rates

Here is the most significant statement in this must read article as scarcity of collateral and Fed MBS purchases are already with us:

  As safe collateral became scarce, central banks would inevitably extend the range of acceptable collateral to other bank assets, such as mortgages.....eventually all forms of lending would be pledged to the central bank in return for funding. Banks would no longer carry the risk of that lending: in the event of default, the loss would rebound to the central bank to whom the asset was pledged, and the state - not the bank - would take the loss. The ECB is already a long way down this path even without negative rates.

This is the Fed's plan, to force the state (the nation) to be responsible for all lending losses as the central bank takes on all the risk. I suggest the state better stop this or the state will be engulfed by losses. This applies no less to the United States as it applies to the Eurozone.

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