”By switching to negative interest rates, the ECB is hoping that more money will move out of banks’ reserves and into the “real” economy in the form of loans and spur growth. It’s more likely to spur inflation and unemployment, however. The idea is that if negative interest rates force banks to reduce reserves and loan more, then people and firms will borrow By switching to negative interest rates, the ECB is hoping that more money will move out of banks’ reserves and into the “realmore, spend more, and create a demand-induced boom. Unfortunately, it doesn’t really work that way. We might also note that one reason that inflation, at least in the US, has been muted is the huge stack of excess reserves banks have accumulated. (See here for more on that.) Negative interest rates here in the US could get those funds flowing, with inflation to follow.
Another reason is J6P is tapped out, credit shot from the collapse, incomes not keeping up with inflation in things he needs. 100M MOL paycheck to paycheck without access to cheap credit or have a bank account. They cash their checks at payday loan places. Any money they can borrow usually is at 15-20%+ unlike the 2-4% you and me could borrow at today. Is crazy what it has come to. GOP is totally clueless but even the dems leadership not to far behind. Fed backstopping as the only game in town can't go on forever? Or can it? Did you see how much of this was discussed at Hillary's town hall the other day? |
