Despite an inflammatory picture and title, Mike Bird’s November 4, 2015 Business Insider article “This is how a central bank could kill off cash and bring in negative interest rates on your savings” is an excellent treatment of negative interest rate policy. Mike discusses at length my new paper “Negative Interest Rate Policy as Conventional Monetary Policy,” and provides helpful context.
Here are the two passages giving Mike’s assessment of the future for negative interest rate policy:
Since the financial crisis, the world’s understanding of economics has been undergoing a lot of rapid change.
Ideas that would have been considered crazy just a decade ago are now seen as much more likely.
One of those ideas is that central banks could bring in negative interest rates.
However uncomfortable you are with the idea, you’d better get used to it. What HSBC chief economist Stephen King called the world economy’s “Titanic” problem is going to put governments around the world in a massive bind whenever the next recession hits.
Every lever of economic policy is pretty much tapped out, either for economic or political reasons: Finance departments and heads of government seem strongly against fiscal stimulus. Quantitative easing has been fairly unpopular, and its reputation among academics and economists is mixed at best.
In short, the world’s economy is an ocean liner, and there aren’t enough lifeboats. Despite objections, it may well be that negative interest rates are the path of least resistance.