If you think people who save money are being punished by low interest rates, wait until they have to deal with negative interest rates.
Slashing rates well below zero to make it painful not to spend money is the desperate approach to avoiding an economic depression recently endorsed by Larry Summers, President Obama's former top economic advisor and one-time pick to run the Federal Reserve. With economic growth likely to be weak for the next infinity, the job market stubbornly awful and inflation disappearing, central bankers around the world have been toying with the idea for a while. Every day it gets closer to being a reality.
The European Central Bank is considering making European banks pay 0.1 percent interest on the cash they store at the ECB for safekeeping, Bloomberg reported on Wednesday. This would be a watershed moment in central banking, moving from the Federal Reserve's once-radical zero interest rate policy (ZIRP) into the unexplored territory of negative interest rate policy (NIRP).
Meanwhile, across the pond, St. Louis Federal Reserve President James Bullard told Bloomberg TV he thought the Fed should consider making U.S. banks pay money to park cash, too. He's been saying this for more than a year, but the idea is slowly gaining more credence.
The Huffington Post
Larry Summers' Desperate Depression-Fighting Idea May Soon Be Reality
Mark Gongloff
(h/t Charles Haydn at FB)
Wagging the dog's tail to make him happy. This is tightening rather than loosening, since it effectively imposes a tax on banks.
