NEGATIVE Interest Rates Await the U.S. Too?

Negative RatesNegative interest rates are the latest economic swindle; Europe is already on board with Sweden, Switzerland and Greece signed on. That is the next thing that our compassionate politicians will install to Save Us. (Never mind that their overspending has made the salvation necessary.)

A negative interest rate is exactly as it sounds: You pay the bank to hold your money. If you are a saver, the bank, rather than adding interest to your balance, subtracts it until your money is gone.  Neat, huh?

J.M.Keynes, father of present Keynesianism, preached in 1926 that when an economy slowed too much, government should temporarily replace the missing spending in order to stimulate economic activity. (Governments have been going broke ever since by this prescription.)

The obvious fallacy that Keynes chose not top address was that any government spending must first be taken from the economy that needed the stimulus. As we are fond of saying, that is giving a patient a blood transfusion using blood first drained from said patient. Or from another angle, trying to spend yourself rich.

And now, negative interest rates close the circle, guaranteeing that any money in banks, mutual funds, bonds, etc. will shrink. This brilliant stroke forces everyone to spend their money to avoid watching it vanish. And if you believe that forcing spending stimulates an economy into prosperity, what’s not to like?

We are warned to expect this along with the next stock market crash. Until then, the Fed is expected (next week) to raise  interest by an entire quarter point! Which is to say, an entirely insignificant amount numerically, though a sea change politically. But as soon as the economy’s slowdown can no longer be ignored, it is expected that the Fed will scurry back to printing money plus the aforesaid negative rates.

Yes, you with your hand up in the back row, we do realize that this hornswoggles the basic theory of capitalism. Saving to accumulate capital is a foundation of the whole idea. But our fearless leaders have dumped all that (no worries; they’re using our money, not theirs, right?)

Age old interest is based on the risk a lender takes on by handing his money to a borrower. He may never see it again. He is entitled to a rent for the use of his property, i.e money, and the amount of that is proportionate to his risk of loss plus his temporary inability to use it himself.

Negative rates scrap all that without a moment’s though. Negative rates are therefore, insane, unrealistic and unworkable. The only restraint available is government, which is the very player whose management has rendered most countries insolvent. Yeah.

So,even if the Fed micro-raises interest next week, watch for the retreat to negativity ASAP when things fade toward black.

We note that this is economic insanity. We note that it is excellent politics, since few understand what is being done to them. There’s a reason that they don’t teach much inn public schools …

 

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About Jack Curtis

Suspicious of government, doubtful of economics, fond of figure skating (but the off-ice part, not so much)
This entry was posted in Economics, Government, Politics, Uncategorized and tagged , . Bookmark the permalink.

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