A negative interest rate also leads people to ask the bank for a loan instead of patiently sparing money, and as far as I understand banks love this (more power upon people and free money!).
Low interest rates are good (you could argue) but negative interest rates make it harder to GET dollars to pay back your loans because the value of each dollar is more.
Imagine if you borrow 200k for a house and when you sell it you can now only get 150k, or if you take a new job and the market for your skills pays 20% less than it used to.
Negative rates distort things in weird and unintuitive ways.
Don't you have that backwards? Low interest rates are good for debtors - they pay less interest. Negative interest means you're being paid for borrowing.
Help me explain where my unfounded assumption is. If the interest rate is negative, that explicitly means that money in the future is worth more than money today. That's the definition of a negative interest rate.
I'm going to oversimplify here, but negative interest rates effectively mean you pay the bank to store your money. So on top of inflation, you're losing real money. For someone who saves, negative interest rates mean savers end up with less money at the end of each year, and since OP indicated their preference to saving, that puts them at a disadvantage.
Negative interest rates also that you get paid for taking out debt, which is a tremendous opportunity to buy something that costs $100 for less than $100, but because OP indicated their aversion to taking on debt, this puts them at a disadvantage.
I don't understand the need for negative interest rate. Having the rate set at zero is already bad (it means that your savings erode at the maximum rate). People who are in a position to borrow would do so, and make gains when there is a recovery, while people who can't will be left behind (but i guess this is where the crux of the inequality comes from in the world).
The argument against negative interest rates was that people could simply store cash in a vault and get a 0% return, rather than lend it for a negative return. In practice very slightly negative rates seem to work out because storing large amounts of cash in a vault is hard. However, it's probably still right to assume that if interest rates are meaningfully negative for a while everyone will switch to storing cash.
"Negative rates, which mean deposits decline over time rather than increase, “would be bad for all savers,” said Juergen Dengel, a 40-year-old civil servant from Bonn. If negative rates were introduced at his bank, he would consider withdrawing his money and using it to build a home -- even if that meant going into debt." - This seems like the goal of negative interest rates.
So, imagine what negative interest rates will do. Seriously, I can't imagine it, I sense it will be bad, but I'm not sure how it will play out.
On the other hand, if the fed will pay me to borrow money, I'd love to borrow as much as I can and loan it out on Prosper or Kiva etc.
Alas, the banks get these primo rates, not average joes... who are still paying %15 on credit cards. (money the bank borrows at near zero) Risk compensation and profit do not account for probably even half of that spread.
I shall read the document above fully.
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