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written by reader NEGATIVE INTEREST RATES: WHAT IF ?

By hendrixnuzzles, April 2, 2016

Recently there has appeared economic policy discussions about NEGATIVE INTEREST RATES.

This is the first time in my life that I have ever heard of this concept, and I know of no historical precedent for it.

It seems to be a theoretical construct of policymakers who are desperate to ”stimulate the economy” and are following their belief that lower interest rates will benefit ”the economy”.

This idea of negative interest rates seems to gaining acceptance by Big Government on a world-wide basis. Since it has never been implemented, but may soon be, I open this thread as a forum to discuss the possible implications to ordinary people and investors such as ourselves.

No one knows what will happen. Our opinions and thoughts are as good as anyone else’s; and a government policy of negative interest rates is likely to have a broad impact, so we need to get our bearings on what might occur.

Without claiming expertise I offer the following thoughts to stimulate conversation on the subject:

1. NEGATIVE INTEREST RATES are an an artificial construct of the fiscal authorities, an artificial mathematical projection based on the theoretical assumption that ”low interest rates are good for the economy”.

2. NEGATIVE INTEREST RATES will discourage capital formation; increase debt at all levels; increase consumption; increase speculation; and cause huge distortions in capital allocation.

3. NEGATIVE INTEREST RATES defy logic in that they proclaim that money is worthless, insofar as one does not need to pay for the use
of it. But reality is the contrary, money is valuable and the owner should be paid for the use of it. So the authorities that are promoting negative rates are really saying, ”Our CURRENCY is worthless”, as opposed to ”Money is worthless”.

If someone is willing to lend you $ 100 and you only have to pay back $99, why wouldn’t you borrow tons of money ?

If someone is willing to lend you 100 gold coins and you only have to pay back 99, you do it, right ? So tell me, who is willing to lend me gold coins on this basis ?!

4. The maneuver is also aimed to subsidize and liquify the central banking organizations. They can borrow unlimited amounts and pay it back the next day with less than they borrowed. Pretty good deal for them. The maneuver also removes the fig leaf from the fiction that the governments and banks are really different entities. The banks are instruments of big government and hence will always be bailed out at the expense of people who hold wealth in the form of
currency.

5. Sooner or later there will be tremendous inflation and currency debasement on account of these policies. This is government taxation and confiscation, just as surely as are our our income taxes, sales taxes, excise taxes, property taxes, and all the rest.
What we have left will be inflated into oblivion, possibly in a manner that is outside the control of government.

Remember, inflation is a stated goal of these governments, and it is the only way they can ever fulfill their existing debt obligations.

Open to your comments !

This is a discussion topic or guest posting submitted by a Stock Gumshoe reader. The content has not been edited or reviewed by Stock Gumshoe, and any opinions expressed are those of the author alone.

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SoGiAm
6 years ago

Hi HendrixNuzzles. There have been may articles lately on twitter about Negative Interest Rates. Here are two as that is the limit of a post without moderation.

Negative interest rates in 5 minutes? The Bank of Japan’s latest effort to to win over spooked members of the public on.wsj.com/1PDZgGT
WSJ Central Banks (@WSJCentralBanks)

QE1…QEX, Negative Interest rates, Helicopter Money; Fed has tools, IMHO they all smack of desperation #economy http://blogs.wsj.com/economics/2016/03/21/the-time-and-place-for-helicopter-money/ via Ross Morley (@RossMorley)

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SoGiAm
6 years ago

Suggest search NIRP here: http://www.zerohedge.com/ and ZIRP or NIRP here: https://www.armstrongeconomics.com/

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alanh
6 years ago

HN: Well done!!….good to have another intelligent author willing to nail their colours to the mast rather than sitting back soaking up others intel efforts.
That said, I think youve got it all wrong….at least, your coming at this from the wrong direction. Youre thinking ‘self’ (as in the individual millions of citizens)….They are thinking ‘the economy’ that serves the millions (and pays the poilticians wages).
The economy is essentially a money go round. If the money dont go round, the economy stalls and the masses suffer.
I earn a buck and pay, say, 20% tax. I spend my 80% and the next guy pays 20% tax on his profit….and on and on and on. Eventually (apart from a vanishingly small amount) the taxman gets it all, but meanwhile, you got a new TV. The problem comes when you dont spend your money, but save it….it stalls the taxman!
So the taxman has a prob….how do I get these guys to spend money so I can tax it? Hmm? Perhaps they havent got enough money to spend. Ok, I know, Ill make it cheap to borrow money! NIR….But how many TV’s do you want even if they are 10cents a dozen? So you still dont spend, so that still stalls the taxman.
Solution….. charge them to save their money via NIR ! Because the interest charged is taxable, (and because you dont like being charged), you dont save….ergo, theres more (taxable) money circulating again on the the merry go round.
But this of course means that you have less savings, so will have no retirement provision.
HA! Thats a problem for the next Administration to sort out.

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alanh
6 years ago

Who’s this ‘WE’. The only time theres a ‘we’ is at the ballot box. But you only get there once every 4yrs…….meanwhile your mute, so ‘they’ can play.
Yes the helicopter is another way, but where do the $20 bills come from? Yes, your/our governments need to spend money internally so that you earn enough to buy a TV and they get their tax, then they can spend yet more internally…..loop!
Britain has a big prob right now. It has a whole ONE steel plant which is about to go bust, because they have allowed China to dump cheap steel here (and the EU) so that the steel users can make cars cheaply. If it goes and a next war starts, where will we get steel to build boats/tanks etc? Meanwhile 20k people will be drawing benefits. What cost that added to the cost of imported steel? Why oh why cant they see that exporting money for some short term gain will bankrupt the country?

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