Friday, February 19, 2016

Negative Interest Rate Policies (NIRP) Are Dangerous Experiments #NIRP

Agreed. Zero interest rate policies (ZIRP) has failed to to kick start economic growth in Japan, Europe and the United States for decades. The notion that negative interest rates, ZIRP on steroids, will produce a more favorable outcome as the global economy slowly contracts is certifiable.  China is certainly paying attention.

What if people, those with the ability to see through BS, the illusion of infinite economic prosperity, park in safe havens rather than spend? What would this look like? Declining retail sales, private consumption, despite the penalty for holding cash (1,2).

Headline: Negative interest rates are a ‘dangerous experiment’, warns Morgan Stanley

After European Central Bank Mario Draghi on Monday hinted more economic stimulus could be coming in March, expectations have risen that deposit rates will be pushed further into negative territory in a bid to fend off the impact from lower oil prices and world-wide economic jitters.

While rate cuts usually are seen as a way to stimulate economic growth and weaken the currency, analysts at Morgan Stanley on Wednesday raised concerns that exactly the opposite would happen were the ECB to take rates even lower. Part of this is because investors already have rejigged their portfolios to account for the policy, they explained.



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