The latest from High Plateau Drifter (most recently):
OK, help me understand how negative interest rates will spur growth.Note that the "High Plateau" ain't lookin' so high, anymore!
Anyone with bank deposits will see those deposits shrink. Thus only those who are risk averse, desperate to avoid losses and unable to find non-confiscatory alternatives will hold deposits. Over the long run the falling deposit volumes will contract the monetary base, which in turn will slow the growth of M-2 over the longer term.
NIRP is a transparent attempt to provide an extra profit margin for banks holding needed transaction balances at a penalty rate while placing those balances in reserves with the Fed at a positive rate. Penalize transaction balances and you get fewer transactions. It is a subsidy legislated by a government agency which lacks legislative powers, and a subsidy or income stream that provides an incentive for banks to sit on the deposits rather than lending them out to productive enterprises. Of course, NIRP is driven by falling yields on Fed assets like interest sensitive treasury notes and junky mortgages which make payment for bank reserves at fixed rates parked at the Fed more risky.
This is deflationary.
For proof of quick trouble, I submit the chart of the US dollar after a few Fed heads began talking about the mere possibility of NIRP.
If the most important mission of the Fed is to defend the value of the dollar so that foreign countries will hold their reserves in dollar denominated instruments, it would appear that all this chatter about NIRP is causing world wide capital to flee the dollar. And, surprise, surprise, we are beginning to see the first signs of strength in gold and silver.
This will end badly, very badly.
Previously by High Plateau Drifter: Skeptics to the Ramparts, Fun on the Permanently High Plateau, Surfing the zero bound along the permanently high plateau, and Back To The Future!