Friday, March 11, 2016

Negative Interest Rate Policies Encouraging Hoarding #NIRP

While easy monetary policy has failed produce significant increases in investment and economic growth in the US and Japan since 2001 and 1989, it will certainly produce a better outcome for Europe. If a zero interest rate policy (ZIRP) has generally failed to achieve the elusive plateau of prosperity, a ZRIP on steroids or negative interest rates (NIRP) can't possibly fail, right?

Draghi's comments that "rates will stay low, very low, for a long period of time and well past the horizon of our purchases" suggests an infinite timeline to the policy of forcing consumers to spend rather than save. The Bank of International Settlements (BIS), the central bank for central banks that's appears to be better at listening to speeches than the message of the market, is not worried.

The private sector, a follower of history, does not share their confidence (1,2). What if people forced to spend choose to hoard instead? PZIRP and NIRP encourages spending only if people are optimistic about the future. History has shown us that people will HOARD (even Bavarian banks) when faced with growing uncertainty of extreme monetary and fiscal (taxation) policies by withdrawal from the source of risk rather than participate (spend their money) if they're pessimistic about the economy and future. No policy will change human behavior.

Headline: ECB Ramps Up Stimulus But Disappoints Markets

FRANKFURT—The European Central Bank fired off a salvo of measures aimed at bolstering the eurozone’s fragile economy but markets brushed off the efforts, raising questions about whether it and other central banks still have the tools to bolster weakening growth and inflation after years of easy-money policies.

Across the advanced world central banks are under pressure to launch fresh monetary stimulus or keep interest rates low in response to volatile financial markets, falling oil prices and a slowdown in emerging markets.



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