Negative interest rates spell trouble for savings

Patrick Quinlan

Hang on for a minute...we're trying to find some more stories you might like.

Email This Story

Recently in the United States, central bankers have thrown around the idea of negative interest rates; that is, paying investors to take out loans from banking institutions and charging people to keep money in their savings accounts. The idea is punishing saving will increase consumer spending in the economy while simultaneously boosting investment — the goal of any good Keynesian central banker.

 Even Keynesians, though, have their misgivings about the consequences of such a policy. For me, negative interest rates are the ultimate logical conclusion of Keynesian policy. Just as I vehemently oppose central banks manipulating interest rates for the long run and the effects of such policies, so too do I find the idea of negative interest rates absolutely abhorrent.

 The obviously deleterious effects of this proposed policy are quite simple to identify. Efforts to boost consumer spending in vain despite its stagnation as a direct result of Federal Reserve policies, central bankers wish to lower interest rates even further by flooding the economy with more and more currency. The short-term effects of such policies, acknowledged even by left-leaning economists, are a potential stock market crash and huge loss of savings.

Banks could be short on funds necessary to lend out to the influx of new investors as savings accounts become barren, even with support from the Fed through open market operations. The uncertainty about the economy will only become worse, and instead of spending or saving the money, people will just stuff cash under their couch cushions instead of injecting cash into the economy. The multiplier effect will be nonexistent, and the economy will grow even more stagnant, even as the long term effects begin to take place.

 The long term effects of this are potentially even worse; inflation and economic stagnation have been the norm following the bursting of the Fed’s bubbles. As we can see from history, since the institution of the Federal Reserve in 1913, purchasing power for consumers has dropped a whopping 97 percent.

 The economic stability that was promised through Keynesian policy manifested as a prolonging of the Great Depression, as the public works projects were simply artificial growth that diverted resources from projects that were actually attempting to accomplish productivity and long term sustainability.

 For too long, Americans have tolerated a central bank (accountable to essentially no one) manipulating the nation’s currency (which is now backed by absolutely nothing) and causing the loss of their purchasing power.

 Repairing fiscal policy is important, no doubt about it, as taxes steal the fruits of production and destroy projects that might have otherwise been accomplished. But fixing our broken monetary policy and restoring real balance and stability to our currency  (or currencies, perhaps) must be done before any other actions can be taken.

 Negative interest rates must be opposed, at any and all costs, lest we forever lose our economy and remain in
perpetual depression.

Print Friendly, PDF & Email