Imagine a bank that pays negative interest. Depositors are actually charged to keep their money in an account. Crazy as it sounds, several of Europe’s central banks have cut key interest rates below zero and kept them there for more than a year. For some, it’s a bid to reinvigorate an economy with other options exhausted. Others want to push foreigners to move their money somewhere else. Either way, it’s an unorthodox choice that has distorted financial markets and triggered warnings that the strategy could backfire. If negative interest rates work, however, they may mark the start of a new era for the world’s central banks. Yen Tumbles as Kuroda Surprises With Negative Interest Rates The Background Negative interest rates are a sign of desperation, a signal that traditional policy options have proved ineffective and new limits need to be explored. They punish banks that hoard cash instead ofextending loans to businesses or to weaker lenders. Rates below zero have never been used before in an economy as large as the euro area. While it’s still too early to tell if they will work, Draghi pledged during the height of Europe’s debt crisis in 2012 to do “whatever it takes” to save the area’s common currency, signaling the ECB’s willingness to be innovative. It chose to experiment with negative rates before turning to a bond-buying program like those used in the U.S. and Japan. Policy makers are trying to prevent a slide into deflation, or a spiral of falling prices that could derail the recovery. The euro zone is grappling with a shortage of credit and unemployment near its highest level since the currency bloc was formed in 1999. SOURCE: BLOOMBERG The Argument In theory, interest rates below zero should reduce borrowing costs for companies and households, driving demand for loans. In practice, there’s a risk that the policy might do more harm than good. If banks make more customers pay to hold their money, cash may go under the mattress instead. Janet Yellen, the U.S. Federal Reserve chair, said at her confirmation hearing in November 2013 that even a deposit rate that’s positive but close to zero could disrupt the money markets that help fund financial institutions. Two years later, she said that a change in economic circumstances could put negative rates “on the table” in the U.S., and Bank of England Governor Mark Carney said he could now cut the benchmark rate below the current 0.5 percent if necessary. Deutsche Bank economists note that negative rates haven’t sparked the bank runs or cash hoarding some had feared, in part because banks haven’t passed them on to their customers. But there’s still a worry that when banks absorb the cost themselves, it squeezes the profit margin between their lending and deposit rates, and might make them even less willing to lend. Ever-lower rates also fuel concern that countries are engaged in a currency war of competitive devaluations.
I'm surprised we are not hearing about more and more mortgages being paid off early. There was a time when your money market paid more than your mortgage cost. Unless I'm missing something, seems like paying off the mortgage is a better deal than sitting in the bank waiting for a less rainy day.
As I said nearly a year ago that every world economy would be shifting to NEGATIVE INTEREST RATES (http://www.elitetrader.com/et/index...risk-in-the-sp500.85694/page-539#post-4102154) and here we are...as of last night bank of Japan took rates NEGATIVE....they believe this will create growth. It's not going to create any growth at all. If the lowest interest rates in history over the last decade didn't do anything this will NOT work either. And to think the US is headed for NEGATIVE INTEREST RATES soon as well because that's where the fed is taking rates... This entire global world economy is worthless... There is zero growth left and everything they think is going to work is going to fail. So lets all celebrate NEGATIVE INTEREST RATES....thank all the central banks for finally making this Wonderful dream come true....
Last week, Kuroda openly stated "no plans to adopt negative interest rates." This week: "BONZAIIIII!" The country is a joke.
Yep, the saying is that you know when a central bank is going to do something when they start denying it.
Caught this line in a cnbc article: "the BOJ had imposed a “three-tier” system on negative rates. With the huge amount of bank reserves currently sitting with the central bank, “if they impose a negative rate on all these balances, it would have a big impact on banks’ profitability,” he said, noting that existing reserves were going to be exempted" - Nikkei Ends Up After Roller-Coaster Ride On BOJ’s Rate Cut (CNBC) ======== Since I guess we don't yet know exactly what they mean by this three tier system, we can only guess. My guess is that banks will still get positive rates on reserves while the 'little people' get neg rates. That would be so central bankish nowadays.
yea, long the US dollar/Yen is the trade in fact, in japan buying any type of US dollar instrument (forex, USD futures, USD ETF, USD in safety deposit box etc) would be better than keeping it in the bank
inflation which cannot be controlled. in the weimar republic(germany) 1st there was deflation then followed by uncontrolled inflation and then followed by hitller. in the US it will be an inflationary depression.