October 22, 2015

Negative Interest Rates Are Here

Not so long ago, a bank was by definition a business that took deposits from customers, paid them for the use of their money, and lent the cash to other customers at a profit. But that’s not how it works anymore:

Negative interest rates can take many forms, including higher fees that lower or negate the interest a bank pays for deposits, or limitations on what customers can do with deposited funds that lower the real value of those funds. So banks charging fees on deposits are functionally the same as banks offering negative rates to customers.

With the global economy slowing dramatically, led by plunging corporate profits, US interest rates will have to fall in 2016. And cash will have to be marginalized or made obsolete in order to get rates down to where they have a stimulative effect.

So the story of 2016 will be the emerging negative interest rate world and its many, many unintended consequences.

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