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Yesterday the feds cut rates for the second time this month down to 1%.  If you ask me – that is pretty, dang, scary, low.  And it’s scary to think that the Feds could actually lose their leverage, and influence of the key benchmark rate if they have to go all the way down to zero.  What would reaching zero mean?

After doing some research, I realized that there wouldn’t be some great catastrophe, or calamity if the feds did cut the rate to 0.  The interest rate has gone down to similar lows in the US before – although never reaching the zero level.  And, in fact the Swiss, in the 1970’s, had to incur an equivalent negative of the federal funds, imposing a tax on bank deposits, in effect creating a negative interest rate.

If the rate did decrease to such a level of zero, it would be bad in the sense that the feds would then lose that tool as a way of pushing the economy.  And I have a bad feeling that our government, and their ability effectively print money and add more liability to our skyrocketing national debt, would find other ways to stimulate our economy.

“If the federal funds rate were to reach zero, the Fed would not be out of tools for stimulating the economy. But it would have to resort to unconventional approaches that it has never used before.” Source NYT

Can you smell another government bail out? And another, and another…scary.

These are grave times for the US economy, and every time I read that the US continues to head towards a recession, I remember the words of Donald Trump on CNBC with Jim Cramer more than 9 months ago: “We’re in a Recession [right now] – at a minimum”.

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