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Archive for 11. November 2019

Global Economy Struggles With Negative Rates

Posted by hkarner - 11. November 2019

Date: 10-11-2019
Source: YaleGlobal: Will Hickey

Japan and the EU use negative interest rates to maintain feeble economic growth, but such low rates for the US could destabilize the banking system

To sustain economic growth, central banks in advanced economies have steadily reduced interest rates, encouraging consumers to spend. About 30 percent of the world’s investment-grade securities is in negative rate territory – which means lenders and savers pay others to use their funds. But economies are not so easily moved. “Cheapening money to incentivize economic activity is no longer working,” explains author Will Hickey. “European central banks in particular are out of ideas to jump-start economic activity. The near negative and declining interest rates in developed countries around the world have caused the dollar to soar, which has a knock-on effect in developing countries like Indonesia, Turkey and Nigeria that have borrowed heavily in dollars and must repay them from earnings in local currencies that have steadily devalued.” Negative rates are especially harmful for pension funds and the retired who rely on interest income. One economist warns against US reliance on negative rates, which could destabilize the banking system. New ways to spur economic activity are needed, and that includes innovation. – YaleGlobal
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