The idea of negative interest rates in the United States has always been a nonstarter. However, many countries are currently instituting such policies. What this means is a depositor would have to pay the bank money to keep its money in the bank. This is not good for society or banks. The very notion of negative interest rates makes the banking business model unpalatable because the banking business model attracts customers because they pay you interest, and they should.
If the Federal Reserve adopts negative interest rates, then the policy would intensify the current technological movement towards a cash less society even quicker. This means many traditional banks could go out of business. People would then be wisest to payoff mortgages and pre pay bills. At the present time of economic development in the world, we have an oversupply of many things due to over investment which in turn creates over capacity and deflation. This is what causes, and has caused asset bubbles and their popping.
Many demographic subsets of society rely on interest from banks as investment as well as a safe place to keep a lot of money. The lack of banking institutions will create more virtual money mechanisms, increased fraud, turmoil and upheaval leading to a lack of further confidence in the economy and institutions; this type of governmental institution intrusion will disrupt the natural flow and corrective forces of the market. As a result, this could actually bring about the great depression all over again to the likes of the 1930’s. This type of depression was avoided mostly by Ben Bernanke’s policies. However, that does not mean those policies were good for the country. What is clear is that Mr. Bernanke had no other choice; unless he chose depression. Ultimately this may be our only choice if no other knowledge integration is considered. I hope it does not happen.
Societies go through cycles of under and over supply. Speculation drives over supply due to greed, or perceptions that a lot of money can be made. Once the supply/demand equation becomes unbalanced, the more mature the economic cycle and systems in place, the greater the chance for disruption. Our country has vacillated from asset bubble to asset bubble in many sectors of the economy since 1999. The Federal Reserve has attempted to temper this pattern; however, it cannot do so forever.
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