by hendrixnuzzles | April 2, 2016 7:56 pm
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
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 !
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