In Japan, the Bank of Japan failed to prepare the public adequately for negative interest rates. They would have had more public understanding if they had already begun referring journalists and the Japanese public to the translations of my key posts into Japanese that Makoto Shimizu has posted on supplyideliberaljp.tumblr.com. The Bank of Japan should begin pointing Japanese language readers to supplyideliberaljp.tumblr.com immediately.
By contrast, in the US, the famed investment bank JP Morgan is already helping to prepare the American public for negative interest rates that may still be years off in the future. JP Morgan analysts Malcolm Barr, Bruce Kasman and David Mackie of JP Morgan wrote a remarkable report I would love to get in my hands but so far only know from news accounts. And JP Morgan’s Chief Economist Michael Feroli gave a fascinating interview on camera with Bloomberg Business about negative rates that you can see at the top of the piece linked here, and immediately below:
Here are some key quotations from the JP Morgan report that are drawn from Mark Melin’s ValueWalk article “Negative Interest Rates Could Go as Low as 4.5%: JPMorgan Shocker” showing how bullish JP Morgan now seems to be about negative rates:
… the incentive to move into cash will be influenced not only by the level of the policy rate but also by how long negative rates are expected to persist. This suggests that the lower nominal bound is below zero, with the exact level determined by the perceived costs and benefits of moving into cash. …
There has been no sign of banks or others starting to hoard physical cash in order to avoid a negative interest charge. …
… [there] has not been a huge asymmetry in the pass through of lower policy rates to retail deposit and lending rates. …
[negative interest rates] could open up a powerful new tool for monetary policy.
Malcolm Barr, Bruce Kasman and David Mackie’s read on the substantial success of European banks in passing through lower interest rates to both deposit and lending rates is important in the light of recent controversies about the effect of negative interest rates on bank profits. In addition, any serious reporting on the effect of negative interest rates on bank profits needs to mention my proposal in
that central banks use the details of their formulas for interest on reserves to effectively subsidize banks for continuing to keep zero interest rates for small household accounts while encouraging banks to pass on negative rates to commercial accounts and large personal accounts. Because most households have relative small bank balances, it is easy to have 80 to 90% of all households shielded from negative rates, while 80 to 90% of all funds are subject to negative rates.
The aggregate demand effects of negative interest rates do not depend in any important way on regular households seeing negative interest rates on their deposits. The oomph from negative interest rates comes from bring down interest rates for auto loans, mortgages, and business loans, and from encouraging businesses that are sitting on large piles of cash to pursue new business projects with that cash on pain of seeing those piles of cash sitting around doing nothing shrink if they don’t. I wrote a children’s story a while back on how it works: