Eye Crosser #15: Negative Interest Rates

Well, just when we’d thought we’d heard and/or perhaps read it all, here’s a new twist to monetary policy, oriental style, and, perhaps, coming soon to a neighborhood near you! It’s called negative interest rates! First, of course, a definition from Investopedia.com, so here goes:

Definition: Negative Interest Rate Policy (NIRP)

During deflationary periods, people and businesses hoard money instead of spending and investing. The result is a collapse in aggregate demand which leads to prices falling even farther, a slowdown or halt in real production and output, and an increase in unemployment. A loose or expansionary monetary policy is usually employed to deal with such economic stagnation. However, if deflationary forces are strong enough, simply cutting the central bank’s interest rate to zero may not be sufficient to stimulate borrowing and lending. A negative interest rate means the central bank and perhaps private banks will charge negative interest: instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank. This is intended to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe.

Read more: Bank of Japan Announces Negative Interest Rates | Investopedia http://www.investopedia.com/articles/investing/012916/bank-japan-announces-negative-interest-rates.asp#ixzz3yfqvax3s

 

Now to be clear, the Fed has not implemented this policy. The Bank of Japan has. This policy affects the people of the country of Japan. However, since we are now an interconnected economically driven world, these negative interest rates will be an interesting policy to observe. It appears that the Fed has not ever used such a policy here in the U.S., but “never say never.”

What’s scary about the current stock market is that I see more and more “gurus” suggesting that one should “go to cash.” In other words, sell stock holdings and get out of the market. If one were also “barred” from stashing that cash, or any other dollars I may want to “keep safe”, from being deposited in a savings account or money market at a bank, because of negative interest rates, what’s a person to do? I surely don’t want the bank taking money from me because I am “holding my money” at the bank for safekeeping!!!

Because of the Great Depression, our family heard of stories of relatives literally putting money behind a loose brick in the basement* or under a floor board. There have been many, many changes to life in general in my lifetime including bank savings interest rates ( 1950’s) that went from 5% (at a bank) or 5-1/4% interest at a savings and loan (wow, remember those) to zero now. But we never feared a negative interest rate where we pay the bank for the “privilege” of keeping our “pennies” there.

*In the U.S. many homes have a basement. It’s a below ground area where the furnace, hot water tank, and perhaps the “extra” cash is buried (just kidding).

There’s a movie called Network. In the movie, a broadcaster is fired from his job and is so angry at the changes at the television station that he shows his outrage by publicly shouting “I’m mad as hell and I’m not go to take it anymore!” See YouTube clip: https://www.youtube.com/watch?v=q_qgVn-Op7Q

What’s interesting and disturbing about the movie is that it was made in 1976! Forty years ago! Yet, the tirade that actor Peter Finch let’s loose could be talking about today, TODAY, literally.

Anyway, enjoy the movie clip. It’s a good movie, rent it or stream it. I love the movies (well, most of them). To me it’s an escape for a little while. Yet, Hollywood sure gets “real life” once in a while. They are recently doing some “true to life” Wall Street theme movies but that’s “grist” for another post.

Oh, by the way, don’t bump your head when sticking it out of your window!
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Depth
Shiver

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