Hello. What effect would a negative interest rate have over an economy? Is it positive of negative effect? In addition, what prompts a central bank to reduce their interest rate to negative (-)? What do they hope to achieve by doing this? What effect would this have on the fixed deposits or borrowed money in such countries? For example, the interest rate in Switzerland is currently negative. These are vital questions and answers would be appreciated. Thank you.
Low interest rates are VERY bad for the elderly and those that have saved money over many years. Very good for young people looking to buy homes and invest in businesses.
1)Savers will lose out. With inflation already above target, a fall in the saving rate will lead to an even bigger negative real interest rate. Savers will see a fall in their real wealth and living standards. 2)Banks may still not want to lend. The main thing holding back lending may be the overall state of the economy. Even cutting interest rates to negative may fail to increase lending.
I think you are looking at a period of extreme deflation. It almost happened, but Bernanke said that they would be willing to drop money out of helicopters. Research what happened during the Great Depression to research this phenomena. However, the more likely scenario is that the US just prints more money. It will be politically feasible if interest rates turn negative. So, it will only likely be a temporary phenomena.
Interest only maybe but you always pay 1%-2% over base anyway, so you'd have to get to -3% interest rate to start actually getting money back. Typically the worlds bailed itself out on high inflation, but wages following in line, so your wage goes up 300%, which makes your debts seem 25% the size, everything else goes up aswell, then you've got more money to spend. This time, just to prove me wrong they've fought against this all the way.
Historically, would of made more sense than Typically. This setup has never happened before, so confused.com totally.
Apropos OP;s question. http://www.zerohedge.com/news/2015-...ark-danish-central-bank-cuts-rates-third-time
Negative interest rates are a desperation play IMO since QE has failed and they need new ideas to keep the old game going. The intent is to save the banking system and deflate the bond bubble without an debt counter-party explosion ripping apart the world currency (AKA debt) exchange system. They don't print money, but they print debt. Debt requires service and service requires growth (real GDP not propaganda or talking heads) If growth falls below service requirements, bad things happen. Negative interest rates are an attempt to service larger debt amounts in an exponential growth monetary system. No exponential growth can exist in the real world so the end could be quite catastrophic. It is not that banks won't loan, it is that they must have service for new loans and the quality of borrowers has fallen because of the damage done to the economy by not accepting little failures caused by excess debt creation. A bunch of little failures will add up to one big big big failure IMO. A profit comes because of the spread on debt service to costs so capitalism can't work. A loan service is the spread on savers vs banks. Get rid of all the savers/investors and there is a problem. The solution so far has been to get the rich to save more and whack the workers. Ironic in a socialist solution to a super big debt problem - let's all share the debt. You should service a little more than me though since I am poor. Watch Europe closely to see how it succeeds. "If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered...I believe that banking institutions are more dangerous to our liberties than standing armies... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." - Thomas Jefferson "An oligarchy is said to be that in which the few and the wealthy, and a democracy that in which the many and the poor are the rulers," - Aristotle http://faculty.frostburg.edu/phil/forum/PlatoRep.htm