news.goldseek.com / By: David Haggith / 21 June 2016
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The economics world is all a-chatter about how central banks and their member banks have moved interest rates beyond the zero bound to charging negative interest rates. There is just as much brainless talk about why this is accomplishing nothing. No one seems to notice that negative interest rates never actually happened!
Sounds preposterous? Think about it:
Think about it in terms of the central bank’s stated objective, which is lowering the rate at which banks loan out money. As the recession went on, central banks tried to drive interest on loans like mortgages lower and lower in order to entice people to buy things with loans in order to stimulate the economy. Because that didn’t stimulate the economy enough, central banks started saying they might have to go from lowering interest (for banks) to the zero bound (zero interest rate policy — ZIRP) to taking interest all the way negative (negative interest rate policy — NIRP). Nope. Never happened anywhere.
In order to get interest rates in the general economy down, central banks made moves that would take down the rate at which banks borrow money from each other and from the central bank. Eventually, central banks took that rate all the way down to zero.Following that progression, if interest were going to go truly negative, the central bank would need to start paying banks for borrowing money from each other or from the central bank. (In the context of talking about ZIRP, that would be true negative interest rate policy.)
Given that the actual objective is not what happens between banks but to stimulate the general economy, central banks would have to do this in ways designed to make sure their member banks pass that negative interest on to mortgages and other loans. Negative interest, instead of just low interest on your loan, would mean the banks pay you to take the money. Hallelujah! That would put some adrenaline in a dying economy!
The post Negative Interest Rates Aren’t Working Because They Haven’t Been Tried appeared first on Silver For The People.
