Why NIRP (Negative Interest Rates) Will Fail Miserably

What NIRP communicates is: this sucker’s going down, so sell everything and hoard your cash and precious metals.


The last hurrah of central banks is the negative interest rate policy–NIRP. The basic idea of NIRP is to punish savers so severely that households and businesses will be compelled to go blow whatever money they have on something–what the money is squandered on is of no importance to central banks.

All that matters is that people and enterprises are forced to spend whatever cash they have rather than “hoard” it, i.e. preserve and conserve their capital.

That this is certifiably insane is self-evident. If an economy depends on bringing future spending into the present by destroying savings, that economy is doomed regardless of NIRP, for eventually the cash runs out and spending declines anyway.

But NIRP will fail completely and totally due to another dynamic— one I addressed last month in Another Reason Why the Middle Class and the Velocity of Money Are in Terminal Decline. As correspondent Mike Fasano noted, negative interest rates force us to save even more, not less:

“People like me who have saved all their lives realize that they their savings (no matter how much) will never throw off enough money to allow retirement, unless I live off principal. This is especially so since one can reasonably expect social security to phased out, indexed out or dropped altogether. Accordingly, I realize that when I get to the point when I can no longer work, I’ll be living off capital and not interest. This is an incentive to keep working and not to spend.”

If banks start charging savers interest on their cash, savers will have to save even more income to offset the additional costs imposed by central banks on their savings.

A third dynamic dooms the insane negative interest rate policy: what does it say about the stability and health of the status quo if central banks are saying the only way to save the status quo is to force everyone to empty their piggy banks and spend every last dime of cash?

What exactly are we saving by destroying savings and capital? Isn’t capital the foundation of capitalism? The answer is we are saving nothng but a rotten-to-the-core, parasitic, predatory banking system, coddled and enabled by corrupt central banks and states.

What NIRP says about central banks is that they have run out of options and are now in their own end zone, heaving the final desperate Hail Mary pass that has no hope of saving them from complete and total defeat.

NIRP also says the economy that needs NIRP is sick unto death and doomed to an implosion of impaired debt, over-leveraged risk-on bets and asset bubbles generated by stock buybacks and central bank purchases of risky assets.

The central bankers are delusional if they think NIRP will inspire confidence in investors, punters, households and enterprises. Rather, NIRP signals the failure of central bank policies and the end-game of credit expansion as the solution for all economic ills.

What NIRP communicates is: this sucker’s going down, so sell everything and hoard your cash and precious metals. If that’s what the central banks want households and enterprises to do, NIRP will be a rip-roaring success.

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  • Robert Colescott

    I’ve called Wall Street (the owners) parasitic for some time now. Many people thought I was crazy for saying it. Many knew I was right and many more will be inclined to agree with us going forward. If the country can’t generate the wealth our owners expect of us, they demand and receive full payment anyway because their debt is superior to any other claim, including the money in our savings and checking accounts. This type of economic and monetary system is the predictable result of private central banks, i.e. little to no legal or regulatory constraints, and 100% fiat currency. The best deal of all is when you are in charge of the game where the rules are “tails I win, heads you lose”. They let leverage get totally out of control so that any downturn is dangerous. Many positions are backed up by derivatives, which probably don’t require any collateral at all. NIRP is just another method of implementing austerity on the target population.

  • Silverado

    Are negative interest rates and no physical “money” in circulation even legal (and Constitutional) in this country?? Maybe all the unemployed lawyers in this country could work on this because I don’t think any physical cash in circulation is going to fly in this country. The Fed and the govt are dreaming unfortunately again and this will never happen. Or it happens the same time they come around for your guns. Which isn’t likely to happen either according to this: http://market-ticker.org/akcs-www?post=231078
    So when do those arrests begin again??

  • jadan

    TARP was a bank bailout in the form of a direct levy on the taxpayer. NIRP does the same thing without congressional legislation and hysterical cries of “systemic failure”. But it is systemic failure. There is no need to sit in a class room and listen to some twerp who calls himself an economist spout acronyms. If you put your money in a bank and the bank through legal legerdemain justifies the taking of your money, you are a fool to regard this taking as anything but what it is: theft. This is the private central bankers last con game. The bankers should be arrested, as they were in Iceland, and put in prison. The Fed will not impose negative interest rates with the same impunity it has been done in politically flaccid Europe. The American people won’t stand for it. The Fed cabal had better pay close attention to the emergence of people like Trump & Sanders. The arrogant little minion, Yellen, should realize the Fed is not the awesome thing it once was. It does not command the respect it once did. Americans are not so stupid and gullible as they once were.

  • 18th street

    NIRP is destroying banks. How does that help the economy? NIRP is not a Wall Street creation. It is a creation of government monetary authorities. To me, these people (Draghi, …) should be arrested, tried and jailed for what they are doing.