Who Benefits From Negative Interest Rates?

Hey JessInvestors

If you asked any economists 10 years ago about the possibility of negative interest rates, they would have laughed you out of the room yet now it's a reality for countries around the world. European countries peaked out and have overleveraged their balance sheets and are a great example of where many countries will have to go to remain liquid while being insolvent.

Lowering interest rates to stimulate borrowing, spending and hopefully economic growth is a theory we've hammer to death and if it doesn't work, it just means more is needed. Once countries in Europe got to 0 they effectively ran out of ammo, and have gone negative in places like Denmark and Germany.

You other large economies like the US, Canada, UK and the Aussies are also pushing near 0% or 0% and it's only a matter of time before they go negative too.

What is negative interest rates?

If a central bank implements negative rates, that means interest rates fall below 0%. In theory, negative rates would boost the economy by encouraging consumers and banks to take more risk through borrowing and lending money.

Negative interest rates for retail banks would mean lending out money and expecting less money back when looking at the principle. For example, if they lent you $100 000 over 10 years at -1% you'd only have to pay back $94 876 meaning you saved $5,124.95.

So now you're telling me but that's cool, the bank technically pays you to borrow money but this is only looking at half the story.

Firstly, the banks aren't going to let you get away with it ad they going to add all sorts of fees to make back the shortfall and have financial products that help them profit even when the interest rates are negative.

Balancing the balance sheet

A negative interest for loans also means a negative interest for your savings, this is where the danger comes in. It effectively forces savers to risk their capital and spend it into the real economy instead of losing their potential earnings.

That's right you work hard, you pay your taxes, then they debase it with inflation and then finally take what you had put away with negative interest rates.

Negative interest rates are a new tax you didn't vote for but will have to pay.

Who benefits from negative interest rates?

Naturally, the banks do since they get to eat into your savings each month along with the bank charges they nail you with and can now effectively tap into a larger pool of cash reserves since they've maxed out on selling consumers toxic loans.

Central banks also benefit as they are effectively going long volatility, what they lose on the negative interest rates, they gain on the positive interest they get from what they purchase such as corporate bonds or possibly equities in the future like the bank of Japan.

If rates go negative

If rates go negative in your neck of the woods and you have no savings or below the cash reserves they have set for negative interest rates to kick in I suppose you're fine for now.

I would, however, look at storing any additional surplus in currencies that don't have negative interest rates.

This could be holding another fiat currency, purchasing stable coins or holding Bitcoin or Gold. You will need to do the research and pick the tools or mix you prefer best.

Negative interest rates are not a complete death sentence for an economy but it is signs that it's heading towards one. Either I am wrong and debt, deficits, GDP and money velocity don't matter at all and economics is a waste of time, or I am right and this is telltale signs for currency coming collapse.

Have your say

What do you good people of HIVE think? Is negative interest rates just another way to move wealth to the rich?

So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."

Let's connect

If you liked this post, sprinkle it with an upvote or esteem and if you don't already, consider following me @chekohler and subscribe to my fanbase

Browse & Earn Crypto	Stack Sats For Free	Earn Interest On Crypto

---