Thursday, June 5, 2014

Negative Interest Rates

So I went to the bank to see what they could do
They said, 'Son, look like bad luck got a hold on you'
--Simply Red

As part of its newest package to 'combat deflation,' the ECB announced a charge for banks that want to deposit funds with the ECB. Modern banks typically pay interest, rather than charge fees, for the privilege of holding depositor funds (and trading them in their own personal accounts).

Negative interest rates have long been discussed by central bankers as a possible extreme measure in extreme situations. The idea is to penalize savings in favor of consumption.

It can be argued of course that real interest rates have negative for some time in this era of financial repression.

We are now seeing the even more misguided policy of negative nominal rates come to life.

1 comment:

dgeorge12358 said...

Fatal Conceit - the delusion that a single person or a group of government planners could possibly possess the knowledge to plan an entire economy.
~Friedrich Hayek