Back in October, I warned about several of the zany ideas that central bankers were ready to implement.
And one of them – negative interest rates – is getting closer to becoming a reality here in the United States.
Already, central banks in Switzerland, Sweden, and Denmark have implemented the strategy. And the European Central Bank’s deposit rate is -0.20%.
German government bonds have a negative yield. And as crazy as it sounds, investors are even paying (through negative interest rates) a profligate government like Italy for the privilege of owning their two-year bonds.
As Andrew Milligan, Head of Global Strategy for Standard Life Investments, told the Financial Times, “This is an Alice in Wonderland situation.”
The Fed Moving Toward Negative Rates
It looks more and more as if the United States will be going “down the rabbit hole” in the not-too-distant future if the economy sours.
On November 4, Fed Chair Janet Yellen said as much to a House of Representatives committee: “Potentially anything – including negative interest rates – would be on the table.”
On November 6, New York Fed President William Dudley said on CNBC, “Maybe we can use negative interest rates.”
Former Fed Chair Ben Bernanke also began laying the groundwork for negative rates. In an interview with Politico on October 21, he said the Fed could take interest rates below zero.
Finally, the dovish president of the Minneapolis Fed, Narayana Kocherlakota, projected negative interest rates in his latest projection of U.S. interest rates last month.
All in an effort to stimulate the economy… Getting people to buy things they really don’t need and digging themselves deeper into debt.
Negative Rates Haven’t Worked in Europe
The only problem with this “brilliant” idea is that negative interest rates in Europe haven’t stimulated the economy.
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