Central Bankers not content with being simply incompetent, double down on negative interest rates, seeking to prove they are undeniably wrong.
How cool is that? I hate being wrong, one might think Central Bankers would be as well, but, no!
Edward Chancellor on the Nattering Nabobs of Negativity
No snipping allowed so you will simply have to go read the article yourself.
We agree that negative rates do not deliver the promised benefits, they undermine bank profitability, destabilize bank liabilities, force household savings, destroy credit creation, and could threaten individuals privacy.
I picked this story up from Mish Shedlock over at The Stupid is Not Impossible | MishTalk, he has discussed the negative rate issue before, including this short and excellent post:
"I am sure that I have covered this before numerous times but here is a list that I have not itemized before.
1. Low interest rates spawn asset bubbles. As bubbles expand, banks make loans on asset prices that rise higher and higher. When bubbles burst, they leave behind a pool of debt that cannot be paid back. It was unusually low interest rates that created the housing bubble and the junk bond/equity bubbles we are in now.
2. Low interest rates spur all kinds of economic development that is not productive. That development sends a signal that things are OK and that shortages exist. In 2005, people actually believed there was a shortage of Florida condos. A couple years back it seemed like going into massive debt to drill oil wells was a good idea. Today we know it was not such a great idea.
3. The Fed, central bankers in general, want 2% inflation. However, there is no reason to believe 2% is a magic number.
4. Inflation benefits those with first access to money: the banks and the already wealthy. Rising income and wealth inequality is a direct result of interest rates set too low. Think back to the housing bubble. By the time money was available for liar loans, the party was nearly over. Those who bought late in the game got crushed.
5. In foolish attempts to hit 2% inflation, desperate central banks have now tried negative rates. Outside of central bank intervention, negative rates are impossible. Negative rates imply one would rather have 90 cents ten years from now than a dollar today. Clearly that is absurd. While we do not yet know precisely what problems may arise from such economic silliness, we can say for sure there will be more economic distortions.
6. What should the interest rate be? I don’t know, nor does anyone else, especially central banks. Rates are best left to the free market. In an environment with no fractional reserve lending and a stable money supply, interest rates would likely be low, and prices stable.
Why are Zero Interest Rates Bad?
I like Mish a lot, head over and read his stuff, you will not be sorry.
John Rubino has an interesting take over at DollarCollapse.
Japan's crazy negative interest rates!
"The crucial sentence from the Bloomberg article is “The central bank buys as much as 12 trillion yen of the nation’s government debt a month.” That means, in effect, that Japan’s central bank is directly funding its government, something once widely understood to be the last gasp of a dying regime but now seen as just part of the new normal.
Gross’ thoughts on the impact of negative rates on huge swaths of the finance industry are also key. Life insurance companies, for instance, take in premiums today and invest them to be able to cover their obligations when policyholders eventually die. They price their policies on the assumption of a mid-single digit positive return on their bond portfolios. Turn that return negative and all of a sudden the world’s life insurers are either unprofitable or insolvent. And that’s a big industry.
Pension funds, meanwhile, operate the same way, taking in and investing contributions against future obligations. Many US pension plans are already borderline broke and in a NIRP environment they’ll suffer a mass extinction. Again, big industry, many employees, huge potential impact on both Wall Street and Main Street.
The slowing growth that results from negative interest rates is thus profoundly deflationary, which presents another explanation for investors’ willingness to park cash in places that cost rather than generate income: They expect the currency they get back to be worth more than the currency they put in.
This is exactly the opposite of what rate-cutting central banks are hoping for — which might in the end be the moral of this tale: Economic laws are like their natural counterparts. You mess with them at your peril."
The Central Bankers seem to be running in the Red Queen's Race, running as fast as they can to stay in the same place. So, now they have opted for Negative Interest Rates, or NIRP, to finally accelerate from their prior Zero Interest Rate, or ZIRP position. Yet still they stand in place, running even faster, and always getting nowhere.
What next central banksters? What new inanity will you find to amuse us? Well, until the wheels come off this thing and we crash headlong.