Someone linked this article from businessinsider.com on a Facebook group recently. I don’t recall if it was the OP or the commenters who were asking how this works. “They’ll pay me to take out loans?” They weren’t alone in their confusion on the subject. Their President is also confused:
“As long as other countries are receiving the benefits of Negative Rates, the USA should also accept the ‘GIFT’. Big numbers!” Trump tweeted.businessinsider
This would be a prime opportunity for a facepalm emoji in Facebook land. It’s just too bad that facepalm isn’t a reaction that you can give on Facebook. The point of negative interest rates is not the paying of interest to take out loans. You will not be paid for getting a loan. There are no big numbers to be taken advantage of. There is just incentive to spend:
With negative interest rates, cash deposited at a bank yields a storage charge, rather than the opportunity to earn interest income. By charging European banks to store their reserves at the central bank, the policyholders hope to encourage banks to lend more.5
In theory, banks would rather lend money to borrowers and earn at least some interest as opposed to being charged to hold their money at a central bank. Additionally, negative rates charged by a central bank may carry over to deposit accounts and loans. This means that deposit holders would also be charged for parking their money at their local bank while some borrowers enjoy the privilege of actually earning money by taking out a loan.investopedia.com
The point of negative interest is to get the businesses who are holding liquid cash to spend it because it will lose value over time. That is the point. The benefit to the average person won’t come from borrowing money with money they don’t already have. The benefit will come from the spending that everyone holding cash will be obliged to do. There still won’t be income for anyone not doing something that cash holder wants done. Those people will still need to be propped up with dividends from the system until we can start getting out of our houses again. We are all owed the kinds of money that corporations get every single day. All of us are owed that kind of government payout because we are what keep this country going.
facebook (Dead link. It used to go to Dan Carlin – Common Sense or to Mr. Spock’s Dank Meme Stash group on Facebook. I’ve forgotten which one it was.)