So I’ve been reading an article on AP about negative interest rates and it really didn’t seem so bad. There were a bunch of quotes in it that basically sounded like “NEGATIVE RATE BAD!! SCARY!!” but without actually having any content pertaining to the possible risks.
It seems totally intuitive to me that you would do this if you wanted to punish people for huddling up avoiding investment and keeping every cent in the bank instead of stimulating the economy. It also seems like an efficient tool for battling capital strikes.
What is the massive risk that people are afraid of there?
In: Economics
If there is a negative interest rate the economy will stop. Banks won’t lend money (a truly negative interest rate means that they’d have to pay their customers to borrow money), which means that people will quit buying things that they can’t afford to pay cash for, which will absolutely and totally destroy the economy.
Houses won’t be built, because almost nobody will be able to pay cash for a house, so the people who build things for houses will lose their jobs. Cars won’t be built at anywhere even remotely close to the same scale, for the same reason as houses, which means that all the supporting industries for automotive manufacture will dry up and go away, which means that all the support industries for all those companies will be hurting. Banks will go out of business quickly, because without a way to earn money, why exist? It will all fall like dominoes from there.
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