“More money cannot cure what too much money created.”
There’s nothing positive to say about negative interest rates.
If seven years of zero interest rate policy (ZIRP) has left the U.S. economy is such sad shape, how could negative interest rates help? Negative rates have already been tried in Europe and Japan, and they have failed to boost the economy.
And yet some believe the Federal Reserve Board is considering replacing ZIRP with NIRP. We’ve written plenty about the failings of ZIRP, or zero interest rate policy, and believe it would be foolish for the Fed to consider NIRP, or negative interest rate policy.
How does NIRP work? As Zerohedge explained, “The process can be as simple as the central bank charging its member banks for holding excess reserves, although the same thing can be accomplished by more roundabout methods such as manipulating the reverse repo market.”
In other words, central banks created trillions of dollars in excess reserves throughout the banking system and now they want to charge banks for holding those reserves. The idea is to coerce banks to lend the money, which should stimulate the economy.
But if banks aren’t lending much money now, with interest rates near zero, will they lend money when interest rates dip below zero? Will they reduce their cost of excess reserves by loosening their lending standards, which would likely increase bad loans, or will they pass the costs on to customers?
Loosening lending standards, you may recall, was what caused the last financial crisis, when banks were providing mortgages to anyone with a pulse. And passing costs on to customers won’t be easy. Bank customers have historically received a small amount of interest for putting their savings in a bank. They’re not likel