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.
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 wonder about that. In theory it means you can have interest rates that are well below 0% (think of -2% or worse). The idea behind negative interest rates is that there is work to be done that cannot be financed at a 0% interest rate and that the interest rate has to be even lower.
If you assume 2% bank fees and a -3% interest rate it would be possible for banks to hand out -1% loans and that would allow financially insecure consumers to acquire loans because you cannot default by definition. Your principal will shrink even if you do nothing.
Will this work? I feel like it could work but it could also have unintended consequences.
> The government can borrow money at negative interest rates.
The feds are borrowing at less than the rate of inflation, but they're not borrowing at negative rates.
Note that current interest rates don't accurately reflect the interest cost of borrowing because those loans will be rolled over a couple of times. Do you really think that the low interest rates will continue?
More to the point, said borrowing has to be repaid. If the expected/likely additional tax revenue from this program is less than the amount spent, it's a bad deal.
Can you explain how that is possible? In my understanding, if the interest rate is negative then the bank is, in other words, charging you a fee to keep your money there plus you are still taking a hit from inflation so at least if you take all your money out of the bank you are only taking the hit from inflation and not having to pay the bank a monthly fee to do so.
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.
For a consumer to borrow funds the nominal rate is negative? Where have you seen this? I'd like to see a citation.
The reason this rate cannot be negative is that demand will immediately fill it up and use it for arbitrage (shove the money under a mattress and pay back the loan later) before it can become negative.
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