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ECB Seriously Considering Negative Interest Rates

  • Written by Syndicated Publisher 1 Comment1 Comment Comments
    February 15, 2014

    Central bankers need new mottos. I happen to have a few proposals.

    1. It takes effort to fail, and we try harder.
    2. If at first you don’t succeed, repeat what doesn’t work.
    3. The 1% are our friends, and we hope it shows.

    ECB Seriously Considering Negative Interest Rates

    Appropriate mottos out of the way, let’s turn our attention to the silly idea of the day: negative interest rates.

    Via translation from El Economista, please consider ECB Seriously Considering Negative Interest Rates.

     Coeuré Benoit, a member of the European Central Bank government, said today that the ECB is ‘seriously’ considering negative interest rates.

    Mario Draghi has repeatedly recognized that there is a debate within the ECB on the pros and cons of negative rates that would seek to force banks to lend.

    Forcing capital impaired banks to lend is blatantly stupid. The expected result is higher losses.

    As a fundamental matter, it’s actually mathematically impossible to lend excess reserves. For discussion, please see Notes From Steve Keen on “Lending Reserves”

    Regardless of the mathematical impossibility, people (even central bankers) want banks to lend their reserves to stave off deflation.

    The deflation-fighting idea is also ridiculous as noted in Deflation Theory Reality Check: Why Inflation is Severely Understated; Feel Good Effect

    With the above in mind, additional motto suggestions are welcome.

    Addendum:

    I received a number of interesting mottos from readers. The best one was from Steve who proposes “We don’t care. We don’t have to, because we own you.”
    Read more at

    http://globaleconomicanalysis.blogspot.com/2014/02/ecb-seriously-considering-negative.html#oedDiVz4gyavi64G.99

    Images: Flickr (licence attribution)

    About The Author

    Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.  Visit Sitka Pacific’s Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

    You are currently viewing my global economics blog which typically has commentary every day of the week. I am also a contributing “professor” on Minyanville, a community site focused on economic and financial education.  Every Thursday I do a podcast on HoweStreet and on an ad hoc basis contribute to many other sites.

    When not writing about stocks or the economy I spend a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com.

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