Kerry: Migrants are Existential Threat, but to the GDP?

Posted on February 16, 2016February 16, 2016 by Denise Simon

Zerohedge: How quickly the official narrative changes.

Just several months ago, in October, we reported that the now-rattled largest European bank, Deutsche Bank, boosted its forecast for German 2016 GDP to 1.9% from 1.7% saying that “although the external and the financial environment have deteriorated we have lifted our 2016 GDP call… drivers are stronger real consumption growth due to lower oil prices/stronger EUR and the surge in immigration.”

Little did DB know that crashing oil and commodity prices would lead to existential concerns about its own viability manifesting in a record blow out in its subordinated DB CDS, a record plunge in its stock price and ever louder comparisons between Deutsche Bank and Lehman Brothers. As for the boost to German GDP from the influx of refugees, maybe DB had in mind the soaring pepper spray sales following the infamous Cologne New Year’s “celebration” events.

But even prior to that, on September 18, in an editorial piece the NYT wrote that “Europe Should See Refugees as a Boon, Not a Burden” and goalseeked its liberal conclusion as follows:

Many European leaders have described the refugees who are risking their lives to get to the Continent as a burden. But there is good reason to believe that these immigrants will contribute more to Europe economically than they will take from it.

Numerous studies have found that immigrants bolster growth by increasing the labor force and consumer demand. Rather than being a drain, immigrants generally pay more in taxes than they claim in government benefits. Even a large influx of immigrants does not mean fewer jobs for the existing population, since economies do not have a finite number of jobs. Immigrants often bring skills with them, and some start new businesses, creating jobs for others. The less skilled often take jobs that are hard to fill, like in child care, for example, which allows more parents to work.

The left-wing push for sympathy even prompted US Secretary of State to announce, just two days later that the United States would significantly increase the number of worldwide migrants it takes in over the next two years.

The U.S. will accept 85,000 refugees from around the world next year, up from 70,000, and that total would rise to 100,000 in 2017, Kerry said at news conference with German Foreign Minister Frank-Walter Steinmeier after they discussed the mass migration of Syrians fleeing their civil war.

This followed a prior commitment from the White House to accept 10,000 Syrian refugees over the coming year.

Those plans are likely dead and buried now, following the latest U-turn in U.S. policy, which brings us to evens from this weekend, when the same John Kerry, speaking at the Munich Security Conference, praised German Chancellor Angela Merkel for showing “great courage in helping so many who need so much” and European communities who are taking in those fleeing the violence and “rejecting intolerance and racism” within their societies.

However it was here, that for the first time Kerry uttered a warning which until recently would have been branded as borderline xenophobic by the same abovementioned left-wing media, when Kerry warned that the mass influx of refugees and other migrants into Europe spells a “near existential threat” to the continent.

“We are facing the gravest humanitarian crisis in Europe since World War II,” he said at the conference. “The United States understands the near existential nature of this threat to the politics and fabric of life in Europe,” he told the meeting as reported by The Local.

The core problem is well-known: Europe has been deeply split by how to handle the mass influx of people fleeing war-torn Syria, Iraq, Afghanistan and other countries. Germany has taken over 1.1 million refugees last year, while Italy and Greece have been overwhelmed as the main arrival points from the Middle East and Africa. The result is a collapse in Merkel’s until recently unshakable popularity and loud whispers that Merkel political career may not last too long if the refugee problem is not promptly addressed.

Sweden and Austria have also taken in large numbers, but many EU members, especially in the east, have been deeply reluctant to open their doors.

So what does Kerry believe now? Kerry said about the refugee influx: “We are not saying, ‘This is your problem, not ours’. This is our problem. And that is why we are joining now and enforcing a NATO mission to close off a key access route,” he said of an alliance naval surveillance mission off Turkey and Greece.” And we will join you in other ways to stem this tide because of the potential of its damage to the fabric of a united Europe,” he added.

Which is not to say he is incorrect: after all none other than the architect of Europe’s “open society” George Soros, now openly warns about the collapse of the EU if the refugee influx, something he himself has been advocating, is not fixed. Here is a brief excerpt of an interview between George Soros and Gregor Peter Schmitz of the German magazine WirtschaftsWoche.

Schmitz: You have been so involved in promoting the principles of open society and supporting democratic change in Eastern Europe. Why is there so much opposition and resentment toward refugees there?

Soros: Because the principles of an open society don’t have strong roots in that part of the world. Hungarian Prime Minister Viktor Orbán is promoting the principles of Hungarian and Christian identity. Combining national identity with religion is a powerful mix. And Orbán is not alone. The leader of the newly elected ruling party in Poland, Jaros?aw Kaczy?ski, is taking a similar approach. He is not as intelligent as Orbán, but he is a canny politician and he chose migration as the central issue of his campaign. Poland is one of the most ethnically and religiously homogeneous countries in Europe. A Muslim immigrant in Catholic Poland is the embodiment of the Other. Kaczy?ski was successful in painting him as the devil.

Soros’ solution? Money, of course. “My foundations do not engage only in advocacy; they seek to make a positive contribution on the ground. We established a foundation in Greece, Solidarity Now, in 2013. We could clearly foresee that Greece in its impoverished state would have difficulty taking care of the large number of refugees that are stuck there.”

Schmitz: Where would the money for your plan come from?

Soros: It would be impossible for the EU to finance this expenditure out of its current budget. It could, however, raise these funds by issuing long-term bonds using its largely untapped AAA borrowing capacity. The burden of servicing the bonds could be equitably distributed between member states that accept refugees and those that refuse to do so or impose special restrictions. Needless to say, that is where I remain at odds with Chancellor Merkel.

In other words, Soros advocates adding cultural diversity injury to even more debt in an already insolvent European continent – debt which hedge funds could trade and profit from when the time for yet another bailout comes – to fix a problem that would not have been there had Merkel not listened to the likes of Soros, and the NYT editorial board, whose only advocacy of liberal ideals was merely a placeholder to promote their own selfish agendas.

As for Kerry, we find it ironic that the person now warning about refugees posing “a near existential threat” to an entire continent, was just five months ago so very eager to welcome 100,000 Syrian refugees to the US. We wonder if his policy on accepting those same refugees with open arms has changed as of this moment… and who gets to profit this time?

China Stealing Land, Exploiting it

Posted on February 16, 2016February 16, 2016 by Denise Simon

In part, JapanTimes: It’s the first time the leaders of Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar and Cambodia have held a stand-alone meeting in the U.S. China is not an ASEAN member, but its territorial claims over disputed waters have raised international concerns and heightened tensions with some member countries.

Obama said trade between the U.S. and ASEAN had increased 55 percent since he took office. The region is now the U.S.’s fourth-largest goods trade partner. U.S. companies are also the largest source of foreign investment in its member nations, he said.

Obama said he wants to build on that progress “so that growth and development is sustainable and inclusive and benefits all people.” More here.

China Reclaimed Land for South China Sea Anti-Submarine Helicopter Base Near Vietnam

By: Sam LaGrone

PLAN Chinese Z-18F Anti-Submarine Helicopter

The People’s Liberation Army is building a South China Sea helicopter base that could be a key node in a Chinese anti-submarine warfare (ASW) network across the region, according to new satellite images and analysis shared with USNI News on Friday.

The imagery — first published on news site The Diplomat — show what appears to be extensive reclamation work to build could easily be an ASW helicopter base on Duncan Island, about 200 miles from the coast of Vietnam in the disputed Paracel Islands.

The base “could signal a step-up in China’s ASW capabilities across the South China Sea. A network of helicopter bases and refueling stops scattered across the South China Sea, using no more than the bases China is already known to be building, would make almost any coordinate in the sea reachable,” read the analysis by Victor Robert Lee.
“By hopscotching between bases, the [ASW] helicopter fleet would be unconstrained by fuel range or limited numbers of ship-borne landing berths, creating a continuous and contiguous web of surveillance and response capability.”

thediplomat_2016-02-12_15-55-05 The analysis went on to say “such a web would have utility beyond anti-submarine warfare, and would probably reshape surface ship and aerial combat strategies in the region,” Lee wrote.

In reaction to the revelation, Pentagon officials reiterated their call for all South China Sea nations to island reclamation work, in a Sunday statement to USNI News

“The United Sates continues to call on all claimants to halt land reclamation, construction and militarization of features in the South China Sea,” spokesman Cmdr. Bill Urban told USNI News. “While the United States does not take a position on sovereignty claims to land features, we have growing concerns about China’s pattern of assertive behavior, which creates uncertainties about China’s strategic intentions.”

Naval analyst Eric Wertheim told USNI News last week, if the analysis holds up, it would give the Chinese more military options regionally.

“If it turns out to be true. It’s another example of China excreting its effort to control the South China Sea,” the author of the U.S. Naval Institute’s Combat Fleets of the World said.
“From a military perspective it certainly has an impact as these bases can serve as unsinkable aircraft carriers.”

According to Wertheim, the bases could sustain and act as lily pads for the PLAN’s new Changhe Z-18F ASW variant – based on the French SA 321 Super Frelon heavy lift helicopter – which have a range of 450 nautical miles. The Duncan Island installation would put the helicopters easily in range of Vietnam’s maritime territory.

thediplomat_2016-02-12_15-55-13 In September, Pacific Command commander Adm. Harry Harris told the Senate how he viewed the expanded installations across the entire region.

“If you look at all of these facilities — and you could imagine a network of missiles sites, runways for their fifth generation fighters and surveillance sites and all that — it creates a mechanism in which China would have de facto control over the South China Sea in any scenario short of war,” Harris said.
“These are obviously easy targets in war, it’s what we call in the military, “grapes” if you will, but short of that, the militarization of these features pose a threat against all other countries in the region.”

News of the base comes as Vietnam is in the midst of modernizing its submarine force to include six Russian-built improved Kilo-class diesel electric attack submarines. The submarines, acquired for the maritime defense of Vietnam’s substantial coastline, are part of a Hanoi naval expansion that would assert Vietnam claims in the region.

The disparity between the Vietnamese Navy and the PLAN and China’s heavily armed coast guard ships, was highlighted in 2014. That May, China sent a $1 billion offshore oil platform inside Vietnam’s disputed economic exclusion zone (EEZ) and had ringed it with ships to prevent challenges. If China, for example, made a similar attempt in the future, it could make it riskier for Vietnams reconstituted submarine force to intercede with closer ASW helicopters.

While the reclamation work in the Paracels – where last month the U.S. sent the guided missile destroyer USS Curtis Wilbur (DDG-54) on a freedom of navigation operation – is not as controversial as the ongoing work the Chinese have done to build artificial islands in the Spratly Islands near the Philippines.

In the last two years China has turned low tide elevations into military-style installations – though China insists they aren’t for military use.

Victor Robert Lee image. The Chinese controlled territories in the Paracels – on the other hand – are recognized land features that China has controlled since the mid-1970s while Vietnam and Taiwan also have claims.

In addition expanding the territory on Duncan Island by more than 50 percent in the last year, China has also expanded its Paracel holdings at its airbase at Woody Island, North Island and Tree Island.

“The recent developments at Tree, North, and Duncan islands indicate that Beijing is augmenting its position in the Paracels, which have been overshadowed of late by China’s epic construction projects in the Spratlys,” Lee wrote.
The changes in progress will in the Paracels “probably reshape surface ship and aerial combat strategies in the region.”

Strategic Implications of the Transpacific Partnership

Posted on February 16, 2016February 16, 2016 by Denise Simon

Document: Report to Congress on Strategic Implications of the Trans-Pacific Partnership

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Summary

On October 5, 2015, Ministers of the 12 Trans Pacific Partnership (TPP) countries announced conclusion of their free trade agreement (FTA) negotiations. The agreement is one of the Obama Administration’s signature trade policy initiatives, an effort to reduce and eliminate trade and investment barriers and establish new rules and disciplines to govern trade and investment among the 12 countries. TPP proponents, including Administration officials, argue that the proposed TPP would have substantial strategic benefits for the United States in addition to its direct economic impact. They argue that the agreement would enhance overall U.S. influence in the economically dynamic Asia –

Pacific region and advance U.S. leadership in setting and modernizing the rules of commerce in the region and potentially in the multilateral trading system under the World Trade Organization (WTO).

Congress plays a key role in the TPP. Through U.S. trade negotiating objectives established in Trade Promotion Authority (TPA) legislation and informal consultations and oversight, Congress has guided the Administration’s negotiations. Ultimately, Congress would need to pass implementing legislation if the concluded agreement is to take effect in the United States. The geo- political arguments surrounding TPP are widely debated, as are the arguments about its potential economic impact. To some, the TPP is an important litmus test of U.S. credibility in the Asia-Pacific region. As the leading economic component of the Administration’s “strategic rebalancing” to the region, the TPP, proponents argue, would allow the United States to reaffirm existing alliances, expand U.S. soft power, spur countries to adopt a more U.S. friendly foreign policy outlook, and enhance broader diplomatic and security relations. Many Asian policymakers – correctly or not – could interpret a failure of TPP in the United States as a symbol of the United States’ declining interest in the region and inability to assert leadership. Some critics argue that TPP backers often do not identify specific, concrete ways that a successful deal would invigorate U.S. security partnerships in the region, and that an agreement should be considered solely for its economic impact. They maintain that past trade pacts have had a limited impact on broad foreign policy dynamics and that U.S. bilateral relations are based on each country’s broader national interests.

The Administration is also pursuing strategic economic goals in the TPP. Through the agreement, proponents argue, the United States can play a leading role in “writing the rules” for commerce with key trading partners, addressing gaps in current multilateral trade rules, and setting a precedent for future regional and bilateral FTA negotiations or multilateral trade talks at the World Trade Organization (WTO). The core of this argument is the assertion that the TPP’s potential components – including tariff and non tariff liberalization, strong intellectual property rights and investment protections, and labor and environmental provisions – would build upon the U.S. led economic system that has expanded world trade and investment enormously since the end of World War II.

Although most U.S. observers agree it is in the U.S. interest to lead in establishing global and regional trade rules, less consensus exists on what those rules should be, yielding some criticism on the strength and breadth of various TPP provisions. In addition, some argue that crafting new rules through “mega regional” agreements rather than the WTO could undermine the multilateral trading system, create competing trading blocs, lead to trade diversion, and marginalize the countries not participating in regional initiatives.

President’s Day, Was George Washington a Spy?

Posted on February 15, 2016February 15, 2016 by Denise Simon

The Spymaster’s Toolkit

CIA: Long before General William Donovan recruited spies to advance the American war efforts during World War II as Director of the Office of Strategic Services (OSS), predecessor to the CIA, General George Washington mastered the art of intelligence as Commander of the Continental Army during the Revolutionary War.

Washington was a skilled manager of intelligence. He utilized agents behind enemy lines, recruited both Tory and Patriot sources, interrogated travelers for intelligence information, and launched scores of agents on both intelligence and counterintelligence missions. He was adept at deception operations and tradecraft and was a skilled propagandist. He also practiced sound operational security. Washington fully understood the value of accurate intelligence, employing many of the same techniques later used by the OSS and CIA.

As we celebrate the 284th birthday of the first American President, we highlight some of the tradecraft employed to secure our independence from the British and offer insights on its use today. Were it not for the use of secret writing, concealment devises, propaganda, and intercepted communications, there may have been a very different outcome to the War of Independence.

* * * * *

SECRET WRITING

Revolutionary War: American agents serving abroad composed their intelligence reports using invisible ink. George Washington believed this would “not only render his communications less exposed to detection, but relieve the fears of such persons as may be entrusted in its conveyance.”

Communicating via invisible ink required the use of several chemical compositions. One mixture was used to write with disappearing ink, the other mixture was applied to the report to make it legible. Despite their invisible communications, it is estimated that the British intercepted and decrypted over half of America’s secret correspondence during the war.

CIA: The CIA has declassified several documents that provided recipes for making invisible ink. One recipe instructs: “Take a weak solution of starch, tinged with a little tincture of iodine. This bluish writing will soon fade away.” A mixture for exposing secret writing included “iodate of potassium, 5 grams, with 100 grams of water, and 2 grams of tartaric acid added” but warned, “run a hot iron over the surface being careful not to scorch the paper.”

During the Cold War, a major advancement in secret writing technology was the shift from liquid invisible inks to dry systems. The KGB was one of the first foreign intelligence services to employ a dry method. The CIA’s Office of Technical Services in the Directorate of Science and Technology spent considerable time researching Soviet systems and finally succeeded not only in “breaking” them, but in anticipating where its KGB counterpart would go next in the never-ending search for more secure systems. By the end of the Cold War, a kind of tacit convergence had emerged as both sides applied new techniques that used very small, almost undetectable quantities of chemical in secret writing messages. In the words of one CIA chemist, it was like “uniformly spreading a spoonful of sugar over an acre of land.”

CONCEALMENT DEVISES

Revolutionary War: Agents used a variety of modified objects to conceal their secret messages. One device was a wafer-thin lead container that would sink in water, or melt in fire, thus destroying its contents. The device was small enough that an agent could swallow it if no other means of discarding were available. This was done as a last resort as ingestion was typically followed by a severe bout of lead poisoning. The lead container was eventually replaced by a silver, bullet-shaped container that could be unscrewed to hold a message and which would not poison a courier who might be forced to swallow it.

CIA: A concealment devise can be any object used to clandestinely hide things. They are typically ordinary, every-day objects that have been hollowed out. The best concealment devises are ones that blend in with their surroundings and call no attention to themselves. They can be used to hide messages, documents, or film. Some examples of concealment devises include hollowed out coins, dead-drop spikes, shaving brushes, and makeup compacts.

PROPAGANDA

Revolutionary War: During the American Revolution, the British had a shortage of soldiers so they hired almost 30,000 German Hessian auxiliary forces to fight against the Americans. The Continental Congress devised a propaganda campaign to encourage the Hessian mercenaries to defect to America. The campaign included offering land grants to those mercenaries fighting for the British on American soil. The offers were written in German on leaflets disguised as tobacco packets. A mock-defector ran through the mercenaries’ camps encouraging others to defect as well. As part of the campaign, Benjamin Franklin forged a letter to the commander of the Hessians, “signed” by a German prince. The letter instructed the commander to let the wounded mercenaries die. This dealt a blow to the morale of the Hessians. Between 5,000 and 6,000 Hessian mercenaries deserted from the British, in part because of American propaganda.

CIA: Propaganda campaigns use communication to alter a population’s beliefs and views thus influencing their behavior. There are three types of propaganda: white, black, and grey. White propaganda openly identifies the source and uses gentle persuasion and public relations techniques to achieve a desired outcome. For example, during the Persian Gulf War, the CIA airdropped leaflets before some Allied bombing runs to allow civilians time to evacuate and encourage military units to surrender. Black propaganda, on the other hand, is misinformation that identifies itself with one side of a conflict, but is truly produced by the opposing side – like Franklin sending the letter “from” a German prince. Grey propaganda is the most mysterious of all because the source of the propaganda is never identified.

INTERCEPTED COMMUNICATIONS

Revolutionary War: The Continental Congress regularly received quantities of intercepted British mail. General Washington proposed to “contrive a means of opening them without breaking the seals, take copies of the contents, and then let them go on. By these means we should become masters of the whole plot.”

CIA: Clandestinely opening, reading and resealing envelopes or packages without the recipient’s knowledge requires practice. ‘Flaps and seals’ opening kits were used in the 1960s. A beginner’s kit offered the basic tools for surreptitious opening of letters and packages. Once mastered, an advanced kit with additional tools was used. Many of the tools were handmade of ivory and housed in a travel roll.

* * * * *

Washington employed the use of many other intelligence gathering techniques still in use today to secure our independence and freedom from Great Britain. Not only is he The Father of His Country, but he is heralded as a great spymaster. Upon the conclusion of the Revolutionary War, a defeated British intelligence officer is quoted as saying, “Washington did not really outfight the British. He simply out-spied us.”

Pay Your Bills Years in Advance, Negative Interest Rate

Posted on February 12, 2016February 12, 2016 by Denise Simon

Primer:

The Federal Reserve System‍—‌also known as the Federal Reserve or simply as the Fed‍—‌is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907. Over time, the roles and responsibilities of the Federal Reserve System have expanded, and its structure has evolved. Events such as the Great Depression in the 1930s were major factors leading to changes in the system.^[10]

The U.S. Congress established three key objectives for monetary policy in the Federal Reserve Act: Maximizing employment, stabilizing prices, and moderating long-term interest rates. The first two objectives are sometimes referred to as the Federal Reserve’s dual mandate. Its duties have expanded over the years, and as of 2009 also include supervising and regulating banks, maintaining the stability of the financial system and providing financial services to depository institutions, the U.S. government, and foreign official institutions. The Fed conducts research into the economy and releases numerous publications, such as the Beige Book.

Negative 0.5% Interest Rate: Why People Are Paying to Save

When you lend somebody money, they usually have to pay you for the privilege.

NYT’s: That has been a bedrock assumption across centuries of financial history. But it is an assumption that is increasingly being tossed aside by some of the world’s central banks and bond markets.

A decade ago, negative interest rates were a theoretical curiosity that economists would discuss almost as a parlor game. Two years ago, it began showing up as an unconventional step that a few small countries considered. Now, it is the stated policy of some of the most powerful global central banks, including the European Central Bank and the Bank of Japan.

On Thursday, Sweden’s central bank lowered its bank lending rate to a negative 0.5 percent from a negative 0.35 percent, and said it could cut further still; European bank stocks were hammered partly because investors feared what negative rates could do to bank profits. The Federal Reserve chairwoman, Janet Yellen, acknowledged in congressional testimony Wednesday and Thursday that the American central bank was taking a look at the strategy, though she emphasized no such move was envisioned.

But as negative rates — in which depositors pay to hold money in bank accounts — become a more common fixture, there are many unknowns about what these policies mean for finance, for the economy and even for the definition of money.

These are some of the key questions, and, where we have them, the answers.

So how do negative interest rates work?

It depends. In the cases of interest rate targets set by central banks like the E.C.B. and Swedish Riksbank, they set a negative target rate for banks, and banks in turn pass it along to their customers. The E.C.B., for example, currently has a negative 0.3 percent rate, meaning that when banks deposit money at the central bank overnight, they pay for the privilege.

Banks have different ways of passing the negative rates on to depositors, often framed as fees for keeping money in an account, which is basically negative interest rates by another name.

Bond markets reflect these negative rates, too, including for longer-term government debt. For example, if you bought a two-year Swiss government bond on Thursday, you would have needed to pay a price that resulted in a yield of negative 1.12 percent. Even 10-year Swiss bonds have a negative rate, a sign markets expect below-zero rates to persist in Switzerland for many years to come.

Generally companies that borrow money are viewed as riskier than governments, so they have to pay higher interest rates. Therefore negative-rate corporate debt is still rare. But it has happened, including with corporate bonds issued by the Swiss food giant Nestle.

But don’t people just withdraw cash rather than pay to deposit it at their bank or buy a government bond that will give them back less than they paid?

You’d think, right? This was exactly why economists had long thought that negative interest rates were impossible. It helps explain why central banks first turned to other tools, including quantitative easing, when they saw a need to ease monetary policy despite interest rates that were already near zero.

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But it looks as if the convenience of keeping money in a bank account is worth a small negative interest rate or fees for most consumers and businesses, at least at the only slightly negative rates currently in place. Storing and providing security for cash may be more expensive than a small bank charge.

When initial experiments in Switzerland and Sweden didn’t result in mass withdrawals from the banking system, larger central banks in need of easier money moved gingerly in the same direction. They’ll stop when either their economies start to grow or they see more concrete evidence that negative rates are doing more harm than good.

How is this supposed to help the economy?

Pretty much the same way it always is supposed to help the economy when a central bank cuts rates. Lower rates encourage business investment and consumer spending; increase the value of the stock market and other risky assets; lower the value of a country’s currency, making exporters more competitive; and create expectations of higher future inflation, which can induce people to spend now.

We have decades of experience with central banks trying to manage the economy by, for example, cutting bank rates to 2 percent from 3 percent when there is an economic downturn. The shift to negative rate policies is, hypothetically at least, the same, but with a starting point of rates already around zero.

So does it work?

It’s hard to say with any certainty yet. At a minimum, it seems to have an effect of lowering the value of a currency, which makes export industries very happy. It’s less clear whether it can help create sustained economic growth, particularly when the hard-to-calculate downsides are factored in.

What are those downsides?

The global financial system is built on an assumption of above-zero interest rates. Going below zero could cause damage to the very architecture by which money and credit zoom through the economy, and in turn inhibit growth.

Banks could cease to be viable businesses, eliminating a key way that money is channeled from savers to productive investments. Money market mutual funds, widely used in the United States, could well cease to exist. Insurance companies and pension funds could face their own major strains.

In a speech last year, Hervé Hannoun, then the deputy general manager of the Bank for International Settlements, even argued that this could “over time encourage the use of alternative virtual currencies, undermining the foundations of the financial system as we know it today.”

Is the Federal Reserve going to do this in the United States?

Janet Yellen doesn’t think so. But in two days of congressional testimony this week, she also didn’t rule it out.

For one thing, the United States economy, and particularly its labor market, looks to be in stronger shape than that of many others around the world. So the Fed expects to be in interest-rate raising mode this year (though exactly how fast is very much in question). But even if the economy does take a turn for the worse, there’s no certainty that negative rates are the path the Fed would take.

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There is a question of whether that would even be legal. It’s not clear if the language of the Federal Reserve Act allows negative bank rates (J.P. Koning, a financial commentator, runs through the legal issues here). Ms. Yellen said in testimony this week that the legality of negative rates “remains a question that we still would need to investigate more thoroughly.”

She also said that “it isn’t just a question of legal authority.”

“It’s also a question of could the plumbing of the payment system in the United States handle it?” she said. “Is our institutional structure of our money markets compatible with it? We’ve not determined that.”

Financial markets do not now price in meaningful odds of negative rates in the United States. Want one modest clue that negative rates can’t be ruled out, though? In its annual stress test of major banks, the Fed asked the firms to figure out what would happen to their finances in a “severely adverse” scenario that included a sharp rise in unemployment and a rate of negative 0.5 percent rate on short-term Treasury bills — in other words, what you’d expect to see if there were a recession and the Fed cut rates well below zero.

Ms. Yellen noted that the rates on Treasury bills could go negative even in the absence of a policy shift by the Fed, as has happened a few times in the past.

So what are some of the weird things that could happen in a world in which negative rates become routine?

The policies in Europe and Japan are still relatively new and involve rates only slightly below zero. But if the policies become long-lasting, or negative rates go much lower, there are a lot of mind-bending ways it could affect routine transactions.

For example, would people start prepaying years’ worth of cable bills to avoid having money tied up in a money-losing bank account? How about property taxes? Would companies and governments put in place new policies prohibiting people from paying their bills too early?

Or consider this: Many commercial transactions now take place with some short-term credit attached — for example, a company that gets a 60-day grace period to pay bills from its suppliers. Would that flip, and suddenly suppliers would prohibit upfront payment and insist that their customers wait 60 days to pay?

Might new businesses sprout up that allow people to securely store thousands of dollars in bundles of $100 bills, or could people buy physical objects as stores of value that the banks can’t charge a negative interest rate on?

“Negative interest rates in Japan is blowing my mind,” said Jose Canseco, the provocative retired baseball player not normally known for his economic musings, on Twitter. And the truth is, he’s not the only one.