Negative interest rates in Europe specifically designed to lower saving and raise inflation!

Just what Europe’s economies need, lower saving and higher inflation:

Mario Draghi: “Together, the measures will contribute to a return of inflation rates to levels closer to 2%”

The European Central Bank has introduced a raft of measures aimed at stimulating the eurozone economy, including negative interest rates and cheap long-term loans to banks.

It cut its deposit rate for banks from zero to -0.1%, to encourage banks to lend to businesses rather than hold on to money.

The ECB also cut its benchmark interest rate to 0.15% from 0.25%.

The ECB is the first major central bank to introduce negative interest rates.

If one set of Keynesian policies don’t seem to work there are then others they have that will fail just as well. And if -0.1% doesn’t work they can lower the number even more. And the thing is, they are clueless about why none of this will work.

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51 Responses to Negative interest rates in Europe specifically designed to lower saving and raise inflation!

  1. I am the Walrus, Koo Koo K'Choo

    They are desperate.

    They know that the debt-inflation system has blown up. And that deflation, default and unemployment are inevitable.

    And they have no idea what to do to stop it.

    Goodnight Europe.

  2. Dr.Sir Fred Lenin

    The European Lefturd Aristocracy at work,endlessly repeating policies of failure.in the forlorn hope one will work. The meeja want us to follow the leader here ,bring back the krudster,the lying slapper and the swanster,Forward into penury with the alp/greens!

  3. Robert Blair

    Steve,

    As I understand it, the lower the interest rate, the more savings in those accounts is diminished by inflation.

    And negative interest rates should accelerate that, even in very low to no inflation environments.

    Ergo, we are talking about consuming savings?

    But is that not the point of the exercise? Those savings are needed to keep the grand enterprise afloat a bit longer.

    If you were on the Titanic as it was sinking, surely it would make sense to chuck stuff overboard to lighten the ship?

    Or if you were in Mawson’s Hut in the Antarctic winter, would it not make sense to pull down the walls to feed into the fire to keep warm just few more days?

    Why so critical?

    Buy bullion. And Whisky. Or a still.

  4. Andrew

    I noticed the comment about deflation:

    Although the danger of deflation in the eurozone is limited, the ECB is concerned that growth is very sluggish and bank lending weak – both of which could potentially derail the fragile economic recovery.

    Isn’t this an old Keynesian myth where they are all so fearful of deflation but in actual fact a steady (controlled) deflation isn’t necessarily a bad thing?

  5. Craig Mc

    That backdraft you can feel is from money leaving European banks.

  6. JC

    Steve

    It’s not Keynesian to think that low interest rates are a sign of weakness in the economy along with tight credit. This was Milt’s theory.

  7. crocodile

    Worked great in Japan

  8. Squirrel

    It’s the financial equivalent of over-prescribing antibiotics in a futile attempt to avoid all illness and its symptoms – eventually, nature wins out and the antibiotics lost their effect. In the meantime, this will help to keep our dollar artificially high, and thus make it that much easier for improvident Australians to go on over-consuming imported goods and services.

  9. Alfonso

    Euro / Aussie carry trade……….C’MON DOWN.

  10. johanna

    Thanks for this.

    I asked some questions about it in the Forum, and while I got some good answers, am eager to learn more.

    Banking, and macro-economics seem like a very strange, often counter-intuitive, world to this humble punter.

  11. Ant

    I suppose they haven’t considered slashing government spending, axing scores of useless government departments throughout all member countries, destroying the huge regulatory state centred around the mountain of regulatory compliance requirements for OHS, environment & quality and getting the fat and useless mendicant classes, including immigrants, off the state tit.

  12. sabrina

    Interest rate in CDIA is 0.01-2.5%. In normal svings account, it is terribly low. Both are below rate of inflation.
    Some term deposits are better, but only marginally if you really believe the published rate of inflation.
    The actual state of economy depends on more than just the rate of interest?

  13. sdfc

    Isn’t this an old Keynesian myth where they are all so fearful of deflation but in actual fact a steady (controlled) deflation isn’t necessarily a bad thing?

    Deflation is disaster for high debt economies.

  14. 2dogs

    This should drive the Euro down on FOREX markets, provided it is not offset by government borrowing.

    A lower minimum wage in FOREX terms should provide a deregulatory stimulus.

  15. Rohan

    So does this mean the European Central Bank is going to pay me for borrowing money?

    If so, where do I sign up?

  16. sdfc

    The euro hit the skids on the announcement and then almost immediately bounced back, and when I left work was higher than it was prior. Must have pissed the ECB off.

  17. The decisions being made are backing ALL western economies and people into a dark, and more likely to collapse, corner.

    Charging for deposits? What!?!? They think they’re security is worth paying for? Are they kidding or what!?!?

  18. Mk50 of Brisbane, Henchman to the VRWC

    I am an economic numpty and freely admit it: won’t this place maximum financial pressure on the middle class and work toward wrecking them?

    if so, then perhaps they might note that the last time they did that in Europe they got a raft of peculiar fellows in charge of countries, pecular fellows with names like Miklos, Benito, Adolf…..

  19. AP

    Fucking depressing.

    The most depressing point in my life was when, at 31 and the moment prior to the GFC, I realised the people with their hands on the levers of power are mostly complete, absolute fucking morons. Prior to that I had believed they were intelligent but greedy and self-interested.

  20. Dr.Sir Fred Lenin

    This is totally shamefull,get out the guillotines and tumbrills.the old French peasant trick of burying gold coins under the floor is the way to go..of course the massive salaries for the socialist elite bureaucrats will increase with inflation,and more overpaid PS employees will be needed to ensure the people dont withdraw their money from the banks. The money the socialist elites purloin from the Workers will of course be invested in countries where they actually do pay interest on deposits none of your goose and gander rubbish with the socialist elitists. Lefturds and Hypocracy synonomous !

  21. sdfc

    It was a deflationary depression that brought Hitler to power.

  22. What is the most dangerous competitor to Global Business? What would render a particular company/conglomerate no longer a participant in the system? Those with no real loyalty to their country of origin. Global! Bureaucracy, Consumers, Employees, Activists?, just thinkin out loud with these. You may come with some other ideas.

    While we ponder that…. What is the most pressing threat to Politicians/Bureaucrats? Voters? Each Other? Business? What do the bureaucrats need the most? YOU! They need you, to rescue, to negotiate for, to provide for. And what would stop that? Your freedom and liberty. Your ability to look after yourself. Your ability to negotiate disputes to achieve outcomes to your satisfaction. Your ability to look after your own family and community. The closer to this you become? The less you need them to provide anything for you. You need Freedom, Liberty, Education and experience for this to happen. You no longer “Need” to Vote for anyone to save you and those around you. You’d have it covered!

    OK Let me explain a characteristic of the middle class. The middle class is commonly regarded as a social and financial staging post. The poor move into the middle class on their way to independence and the rich crash to the middle class after failure. Lovely. Social and financial mobility! The middle Class also has surplus resources. They can save, raise capital, build businesses, provide assistance for community programs etc. Boy ‘o boy They may even attend church. And that opens a whole new can of “We follow gods laws, not Mans” can of worms.

    Back to the first Question. Biggest threat to Big Business? Competition! Where does that come from? The middle class!, Saving money, Raising capital, building businesses! OK We’re getting somewhere? Yeh? The Biggest threat to the bureaucracy? The Middle Class BBBZZZZZzzzzz.

    “Hey I’ve got a great idea!?!?!” ” Why don’t we lobby the Bureaucracy for Laws and Regulations that will help society”? “Better still”?… “Why don’t we model the education system for what we need, and get the population and young people Job ready”? “Awesome”! “We eliminate all competition right their”! “The bureaucracy becomes responsible for jobs and we get to educate/indoctrinate the people for the jobs/slaves we need”. “They’ll vote for Jobs”. “What a great idea”!

    “Those that trade freedom for security deserve and will receive neither”! … Benjamin Franklin.

    BTW. Those blokes knew a thing or two about Liberty and Freedom. :-)

    Where’d the Middle Class go? Voted out of existence! When you’re on your own. In nice quiet surrounding and hear a little creaking? A slight squeak in the distance? That’s the foundations of system moving and struggling to hold up the weight of the current structure! :-)

  23. AP

    Keep in mind, Mario Draghi is the dimwit who said:

    And the first thing that came to mind was something that people said many years ago and then stopped saying it: The euro is like a bumblebee. This is a mystery of nature because it shouldn’t fly but instead it does. So the euro was a bumblebee that flew very well for several years. And now – and I think people ask “how come?” – probably there was something in the atmosphere, in the air, that made the bumblebee fly. Now something must have changed in the air, and we know what after the financial crisis. The bumblebee would have to graduate to a real bee. And that’s what it’s doing.

    The first message I would like to send, is that the euro is much, much stronger, the euro area is much, much stronger than people acknowledge today. Not only if you look over the last 10 years but also if you look at it now, you see that as far as inflation, employment, productivity, the euro area has done either like or better than US or Japan.

    Then the comparison becomes even more dramatic when we come to deficit and debt. The euro area has much lower deficit, much lower debt than these two countries. And also not less important, it has a balanced current account, no deficits, but it also has a degree of social cohesion that you wouldn’t find either in the other two countries.

    So the Eurozone has greater social cohesion than Japan? The bloke is clearly on drugs.

  24. AP

    Oh, reproduction of the dimwit’s remarks is permitted as long as the source is acknowledged:

    http://www.ecb.europa.eu/press/key/date/2012/html/sp120726.en.html

  25. Andrew

    It was a deflationary depression that brought Hitler to power.

    That’s about as long a shot as the ABC’s “Tiananmen was caused by Chinese capitalism.” 1923 was one of the great inflationary of all time.

  26. sdfc

    Hitler came to power in 1933. You’re a decade out.

  27. sdfc

    We won’t mention that the conservatives backed him to the hilt.

  28. 2dogs

    I blame Keynes for Hitler.

    If it weren’t for his The Economic Consequences Of The Peace, the Germans would not have felt so hardly done by, and they would never have given Hitler his constituency.

  29. Andrew

    Your knowledge of history is exceeded only by your inability to look it up sdfc. The trigger event for the Hitler story occurred in 1923.

  30. Obio

    I would really like to understand why European share markets generally respond favourably to the announcement of the lower interest rates when that level of interest rate would indicate they are in trouble?

    Why did they think 0.15% would work when 0.25% didn’t?

  31. sdfc

    No Andrew, the Nazis were a fringe party until the 30s.

  32. Mk50 of Brisbane, Henchman to the VRWC

    Oh blimey. sdfc’s off his meds again, banging on about how a revolutionary national socialist movement was actually 100% capitalist plutocrats oppressing da wukkahs.

    Ignore him. He’s an historical illiterate and a totalitarian fanboi.

    Anyhoo, back OT, will this policy further empower the European elites, keep hollowing out teh middle class and drive more people into slavery… erm, welfare peonage?

  33. thefrollickingmole

    I did read somewhere (might have been a cat poster) who said it truly revealed a system built on debt rather than savings to drive growth.

    The other thing I dont understand is how a slow contraction is worse than setting yourself up for violent dislocation by throwing out money.

  34. Peewhit

    In my opinion the Japanese deflation is a result of the government business nexus. To save the businesses from being declared bankrupt when the real estate bubble collapsed and so many were going to have to default on their loans the government lowered the interest rate to where the banks could write off their interest without trading insolvent. As most here would know banking is an extremely chancy business, and needs large risk margins, this is why they make such good returns on capital when they get it right. With a capital adequacy ratio of 10%, if they write off 10% of their loans at the end of a bubble they are insolvent.

  35. H B Bear

    Ha ha. They are making this up as they go along.

    Unless they can inflate the debt away they are in real trouble.

  36. Percy

    will this policy further empower the European elites, keep hollowing out teh middle class and drive more people into slavery… erm, welfare peonage?

    Yes

  37. 2dogs

    Because of the mess of German history in the 19th century, it is difficult to say what a conservative really was in 1930′s Germany. If you’re talking a Prussian military conservative, then yes, you’re probably right. If you’re talking about the kind of Catholic conservative that would have been on the other side of the Seven Weeks’ War, then no.

  38. sdfc

    That the conservatives jumped on board is a matter of history.

    You’re collectivist, Hayek had you pegged.

  39. thefrollickingmole

    sdfc

    The conservatives offer that Austrian chap a deal.
    Deal with the extreme socialists within your movement and we will put our resources at your disposal.
    Thus the night of the long knives when the national socialists amputated its “socialist’ parts.

  40. sdfc

    No my movement voted against him. The only party to do so.

  41. mundi

    This is exactly what you expect from keynesians.

    They honestly believe that the economy is driven by consumer demand – so what way better to drive consumer demand than by making everyone with savings spend their money?

    I notice that mortgages in most counteries are around 2% – for most people the interest is less than the government mandated garateed yearly increase in their wages. LOL.

    They are just circling the sink hole now.

  42. Peter from SA

    Ha ha. They are making this up as they go along.

    yes it is rather amusing … what was that Nero guy doing BTW???

  43. thefrollickingmole

    sdfc

    Your “movement” was the other cheek to the same murdering asshole of totalitarianism.

    Your “movement” tried its hand with Rosa Luxomberg in their aborted putsch and got slaughtered.

    I wouldnt be hanging any sense of respectability on claiming that.

  44. sdfc

    Yeah they got hammered by the militarist conservatives.

  45. thefrollickingmole

    sdfc
    They tried a violent overthrow of the government al-la Soviet Russia and were dealt with accordingly.
    Even their own “soft left” allies deserted them.
    Epic and well deserved fail

  46. sdfc

    The Social Democrats? When?

  47. JC

    We won’t mention that the conservatives backed him to the hilt.

    How can you possibly describe that rabble as conservative? How can you, even in the present day, distinguish between the left and right in Europe?

    Shut up SDFC.

  48. thefrollickingmole

    sdfc

    http://www.rosalux-nyc.org/talking-left-strategies/

    Heres an organisation pretty well saying exactly what i just did.

    An Interview with Bernd Riexinger – On May 28, the Rosa Luxemburg Stiftung—New York Office and Jacobin Magazine are hosting a public discussion on the future of the European Left between Bernd Riexinger, co-chair of Germany’s Left Party (DIE LINKE), and SYRIZA strategist Elena Papadopoulou. How are DIE LINKE and SYRIZA building on what came before them, and how are they breaking with old traditions? In which direction are the two parties, and is the European left altogether, heading?

    In this interview, Bernd Riexinger talks about strategic challenges facing DIE LINKE. Citing Rosa Luxemburg’s idea of “revolutionary Realpolitik,” he examines the current situation and lays out strategic ideas for the future. The interviewer, Luigi Wolf, starts by going back to the legacy of the “united front strategy,” which was established by the Communist Party of Germany (KPD) in the 1920s,1 and then shifts to the challenges DIE LINKE currently faces.

  49. Mk50 of Brisbane, Henchman to the VRWC

    sdfc’s just loves his totalitarian monsters, doesn’t he?

    Well, here is proof that old Adolf was a wukkah-oppressing bloated capitalist plutocrat running dog conservative aggressor!

    “We are socialists, we are enemies of today’s capitalistic economic system for the exploitation of the economically weak, with its unfair salaries, with its unseemly evaluation of a human being according to wealth and property instead of responsibility and performance, and we are all determined to destroy this system under all conditions.” –Adolf Hitler

    (Speech of May 1, 1927. Quoted by Toland, 1976, p. 306)

    Oh, wait….

    Back OT, thanks for the explanations about this matter. Hard to see much optimism in Europe’s future right now. Perhaps the paths available are Venezuelan style collapse from wealth into abject misery while the head socialists stuff their Swiss bank accounts with stolen money (the universal fate of all who pull socialism out of history’s garbage-heap and give it yet one more good old commie try); Steyn’s grim vision of Eurabia, Peter’s grim vision of continent-wide Balkanisation and communal violence, or the sort of return to totalitarianism that makes charming people like sdfc slaver with joy and have trouser accidents.

  50. .

    sdfc
    #1336699, posted on June 6, 2014 at 10:00 pm
    No my movement voted against him. The only party to do so.

    This is a bullshit argument.

    Have a look at the German party list in 1932.

    Virtually everyone of those 30 or so minor parties would have voted against the Enabling Act.

  51. Thanasap

    When we say “low interest rate policy” that is not what we really mean in this situation.

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