Mohamed El-Erian: If we were in Europe, we would ask: How long can interest rates stay negative? Think about this. Not only are you lending your money to governments, but you’re paying them interest for the privilege of doing so.
=
…the BOJ’s latest move—negative interest rates—has created a backlash in Japan, leaving Mr. Kuroda and other BOJ officials scrambling in recent weeks to explain themselves. Pushing rates deeper into negative territory now could worsen the outcry and damage public. confidence…people close to the central bank said
The global financial system appears be venturing further into the bizarre world of negative interest rates.
Let’s call it Alice in Financial Wonderland.
On Thursday the European Central Bank is expected to take additional steps to stimulate the eurozone economy, including a further cut in an interest rate that is already below zero.
Why is this so odd?
CNBC Reports:
In an effort to support the real economy and protect the banking system, policy makers are unwittingly conducting a war on market liquidity — thereby ensuring that they will fail to achieve their stated goals.
The latest weapon in the arsenal of central banks — deploying negative interest rates — represents a major escalation with dangerous consequences.
NYT: “Here’s a proposition for you: Hand over your money. I’ll skim some off the top, hold it for a while and return whatever is left in a year or two.”
James Grant, the chief editor of Grant’s Interest Rate Observer, recently said about negative interest rates and a ban on cash: “What precedes implementation of these ideas is a discussion of them. I think this is coming.”
The era of zero or negative interest rates, notably in Japan and the euro zone, could extend for several more years as central banks battle persistently low growth and inflation, strategists at Barclays said on Thursday.
Along with the rest of the world, bond guru Bill Gross has watched as negative interest rates unfurled in Europe and then took root in Japan.
Categories
WSJ: Japan Takes It on the Chen
…One of the unintended consequences of global central banks’ race to the bottom (which seemingly has no bottom) is that negative interest rates act as a tax on the banking system.
