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BOE revives negative rates talk


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13 hours ago, scepticus said:

The nature of money has not been constant over 500 years. The nature of debt and credit more or less has, and that is because money is a creation of more modern human society but debt/credit has been with us since the beginning.

At this point in time ALL fiat money is government debt. Sterling cash is the debt of the BoE and that is part of the government. You must obtain fiat sterling to pay legal obligations and taxes, which means that this is money not gold or bitcoin, although these latter might be termed stores of value (if you are being generous to bitcoin at least).

Because cash is government debt, the government does in theory have the ability to decide not to provide this form of debt and therefore not to offer cash as an option. Presumably the notion of the government entirely paying off the national debt (including that part of it which is cash) is rather fanciful, so one should expect cash isn't going away any time soon. But the rules pertaining to cash have evolved over time and have changed both due to government fiat (many kings in past centuries re-ordered their cash/money systems at will) and due to overall change in the world.

Also cash isn't very different to other forms of government debt, all of which are held as stores of value. No government can tell you what IS a store of value, that is your choice, but governments can will and should be able to decide that what extent they would like their own debt liabilities to act as a store of value, or not.

 

 

 

Money as a convenient mean of exchange has existed for a very long time, probably as long as humanity itself. Money in a form of debt is a relatively recent development. Even less old is the current system with money being a debt of the banks.  

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I think the negative interest rates are intended to make people move their bit of a nest egg into property, new cars, antiques, art and oul bangers (classic cars).  Get the party pumping and round we go to 2030.  I hope they fail miserably.  

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10 hours ago, Locke said:

Too late

 

Briefly, everyone.

If you sell your labour to someone, this is a voluntary exchange and no force is used. Peaceful, innocent, moral.

If you don't pay the taxes the people in government demand from this transaction, they send round collectors in sexy blue uniforms to take it from you.

If you successfully defend your property, the sexy thugs will escalate their assault upon you and attempt to kidnap you.

If you successfully defend yourself, they will escalate and kill you.

Morally speaking, a threat to commit an assault against an innocent person is also evil.

 

Zugzwang is presumably aroused by the idea of this violence, hence his unconditional support of it.

The topic is related to negative interest rates, because they are enforced with massive State violence. If we weren't forced at the point of a gun to use their fiat, we would not be using it.

 

I have an exercise which you won't like.

Read these arguments and write some brief counterpoints to them.

  1. People are quite capable of peacefully coexisting
  2. The government abuses us far more than it benefits us.
  3. We can run our own societies without the threat of violence against innocent people.
  4. People would build and run roads and hospitals with far better service and for cheaper than they are now.
  5. Democracy is simply mob rule
  6. It is possible to agree on a consistent set of moral principles.
  7. Most of our life is determined by your own choice. We should not accept violent interference in any aspect.
  8. Even if life were to be harder without a government, the freedom from violence is worth it.
  9. We shouldn't have to move and uproot our lives just because everyone around us supports evil.

Then compare your answers to this list. Don't cheat and look at the link before you have written your answers!

1. Really, have you been watching world news in the past two decades. 

2. Depends on which government. 

3. With the variety of people on this planet, I have yet to see this in a tion

4. Without the prfit margin driving them, out of altruism? When I see it, perhaps yes. I haven't seen it.

5. Suggest an ACTUAL workable alternative then......

6. Sadly, no. Never in the past as far as I'm aware,  see religeons.

7. Only in the smallest, inconsequential ways.

8. As there would be violence from those determined to have it and lord it over the rest, no.

9. You're at it again. WTAF does that mean.

Link still not read.

Sicere apologies to Scepticus.

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1 hour ago, satsuma said:

I think the negative interest rates are intended to make people move their bit of a nest egg into property, new cars, antiques, art and oul bangers (classic cars).  Get the party pumping and round we go to 2030.  I hope they fail miserably.  

A vested interest into getting people to spend not save......or to keep pumping the stock market and pension policies up.....there no longer seems to be any correlation between what a company is valued at and the economic strength/health of said company......debt is wealth?;)

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3 hours ago, slawek said:

Money as a convenient mean of exchange has existed for a very long time, probably as long as humanity itself. Money in a form of debt is a relatively recent development. Even less old is the current system with money being a debt of the banks.  

That's the wrong way around. Long before hunter-gatherers and the first sedentary societies used money, some of them must have shared their food and labour with others on the understanding they would be repaid in kind. Thus the concept of debt and credit enters the picture of human society long before money as a medium of account or exchange.

Also, while it is possible to operate a society without employing the concept of money, it is not possible to do so without employing the concept of  debt.

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2 hours ago, solentmuppet said:

1. Really, have you been watching world news in the past two decades. 

2. Depends on which government. 

3. With the variety of people on this planet, I have yet to see this in a tion

4. Without the prfit margin driving them, out of altruism? When I see it, perhaps yes. I haven't seen it.

5. Suggest an ACTUAL workable alternative then......

6. Sadly, no. Never in the past as far as I'm aware,  see religeons.

7. Only in the smallest, inconsequential ways.

8. As there would be violence from those determined to have it and lord it over the rest, no.

9. You're at it again. WTAF does that mean.

Link still not read.

Sicere apologies to Scepticus.

Good challenges. What Locke doesn't get is even if government is upheld by violoence (or the threat of violence) it is, at least, not as violent as the complete absence of government.

Locke's view of a government-less world as a better world hasn;t been properly tested.

But what has been tested is what the world would be like without government. Home schooling. 'Nuff said.

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13 hours ago, Locke said:

 

  1. People are quite capable of peacefully coexisting

That's inherently untrue because people have a tenancy to form into tribal groups. 

From continents, to countries, to regions, to towns to individual housing estates people inherently group together and tell stories about, distrust and even fight people from other places. 

I remember discussing racism in America with a friend. I spoke about my English wife who has occasionally been shouted at and threatened in the street for being English. It's 313 years since the union between England and Scotland. Its only 150 years since the end of slavery in America and only 56 years since the end of segregation. 

If America takes as long to naturally and organically grow out of racism as England and Scotland have (relatively at least) then they have another 150-250 years until they only have to worry about name calling and minor violence. 

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Here are some choice quotes from one of favourite economists and historian Murray Rothbard who was also called 'Mr. Libertarian'.

Feel free to agree or disagree with them. I think some of them are brilliat.

---------

“The essential activities of the State necessarily constitute criminal aggression and depredation of the just rights of private property of its subjects (including self-ownership).”

“The State, by its very nature, must violate the generally accepted moral laws to which most people adhere.”

“The State says that citizens may not take from another by force and against his will that which belongs to another. And yet the State…does just that.”

“To go beyond one’s right of self-defense would be to aggress on the rights of others, a violation of one’s legal duty. And yet the State by its claimed monopoly forcibly imposes its jurisdiction on persons who may have done nothing wrong. By doing so it aggresses against the rights of its citizens, something which its rules say citizens may not do.”

“The State is an inherently illegitimate institution of organized aggression, of organized and regularized crime against the persons and properties of its subjects… a profoundly antisocial institution which lives parasitically off of the productive activities of private citizens.”

“Since the State necessarily lives by the compulsory confiscation of private capital, and since its expansion necessarily involves ever-greater incursions on private individuals and private enterprise, we must assert that the state is profoundly and inherently anti-capitalist.”

“We must, therefore, emphasize that ‘we’ are not the government; the government is not ‘us.’ The government does not in any accurate sense ‘represent’ the majority of the people.”

“The great non sequitur committed by defenders of the State…is to leap from the necessity of society to the necessity of the State.”

“All of the services commonly thought to require the State…can be and have been supplied far more efficiently and certainly more morally by private persons. The State is in no sense required by the nature of man; quite the contrary.”

“Libertarians regard the state as the Supreme, the eternal, the best organized aggressor against the persons and property of the mass of the public.”

“If you wish to know how libertarians regard the State and any of its acts, simply think of the State as a criminal band, and all of the libertarian attitudes will logically fall into place.”

“The State uses its coerced revenue, not merely to monopolize and provide genuine services inefficiently to the public, but also to build up its own power at the expense of its exploited and harassed subjects.”

“The State is a coercive criminal organization that subsists by a regularized large-scale system of taxation-theft.”

“The wry coupling of the twin certainties in the popular motto ‘death and taxes’ demonstrates that the public has resigned itself to the existence of the State as an evil but inescapable force of nature to which there is no alternative.”

“There is no reason to assume that a compulsory monopoly of violence, once acquired…by any State rulers, will remain ‘limited’ to protection of person and property. Certainly, historically no government has long remained ‘limited’ in this way.”

“The more the coercive powers of the State are expanded beyond the cherished limits of the laissez-faire theorists, the greater the power and pelf accruing to the ruling caste operating the State apparatus.”

“Advocates of a limited government often hold up the ideal of a government…’umpire’ arbitrating impartially between contending factions in society. Yet why should the government do so? …the State and its rulers will act to maximize their power and wealth, and hence inexorably expand beyond the supposed ‘limits.’”

“Government was constructed neither for ability nor for the exercise of loving care; government was built for the use of force and for necessarily demagogic appeals for votes.”

“Of all the numerous forms that governments have taken over the centuries, of all the concepts and institutions that have been tried, none has succeeded in keeping the State in check.”

“The State is a gang of thieves writ large.”

“In the case of taxation, a man’s surrender to the threat of coercion demonstrates no voluntary preference whatsoever for any alleged benefits he receives. …Neither does voting establish any sort of voluntary consent…to the government.”

“The fact that a majority might support or condone an act of theft does not diminish the criminal essence of the act or its grave injustice.”

“If, then, taxation is compulsory, and is therefore indistinguishable from theft, it follows that the State, which subsists on taxation, is a vast criminal organization…according to the common apprehension of mankind, which always considers theft to be a crime.”

“Only the State obtains its revenue by coercion…That coercion is known as ‘taxation,’ although in less regularized epochs it was often known as ‘tribute.’ Taxation is theft, purely and simply even though it is theft on a grand and colossal scale which no acknowledged criminals could hope to match. It is a compulsory seizure of the property of the State’s inhabitants, or subjects.”

“The necessary result…of the unequal fiscal action of the government is to divide the community into two great classes…tax-payers and tax-consumers.”

“This...is the welfare state in action: It’s a whole bunch of special interest groups screwing consumers and taxpayers, and making them think they’re really benefiting.”

“It is easy to be conspicuously ‘compassionate’ if others are being forced to pay the cost.”

“If mankind is diverse and individuated, then how can anyone propose equality as an ideal?...But what justification can equality find in the nature of man? If each individual is unique, how else can he be made ‘equal’ to others than by destroying most of what is human in him and reducing human society to the mindless uniformity of the ant heap?”

“It is not the business of the law to make anyone good or reverent or moral or clean or upright.”

“It is no crime to be ignorant of economics…But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”

Edited by Warlord
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3 hours ago, winkie said:

A vested interest into getting people to spend not save......or to keep pumping the stock market and pension policies up.....there no longer seems to be any correlation between what a company is valued at and the economic strength/health of said company......debt is wealth?;)

The national anthem should be “you gotta pump it it”

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5 hours ago, satsuma said:

I think the negative interest rates are intended to make people move their bit of a nest egg into property, new cars, antiques, art and oul bangers (classic cars).  Get the party pumping and round we go to 2030.  I hope they fail miserably.  

I'd do exactly that...

... if house prices halved. 

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To return to the thread topic (and at the same time ignore the incredibly dull and repetitive libertarian zealotry).

The goal of NIRP is to ensure credit markets can clear and that money keeps circulating during contractionary and deflationary periods. In turn this serves to protect jobs, sustain innovation and to maintain a fair and balanced economy that is not predicated on eternal inflation and expansion. 


Here are some assertions about its effects. See if you agree.

   1. It is not a stimulus, it is a mechanism to accommodate deflation without preventing it.  
   2. It will only apply during a deflationary economic period; thus the negative nominal rate of return on money should be at least partly offset by falling asset prices.
   3. It cannot work unless banks pass negative rates on bank reserves onto retail customers in the form of a negative interest rate, or fixed banking fees.
   4. The income the central bank receives from the negative interest rate is not spent back into the economy, it is simply deleted. This in turn means that the money supply will shrink during NIRP - another reason why NIRP is not stimulative. In fact, there is no stimulatory way of spending this CB interest income back into the economy that is not contractionary.
   5. It does not hurt the poorest in society since the poorest in society who: have no savings, exist entirely on benefits, benefit the most from falling price levels. The most badly affected are the rich with large cash holdings or with assets that suffer losses due to deflation.
   6. NIRP is a free-market competition in a deflationary environment to see who can lose the least money in nominal terms, like PIRP is (or should be) a competition in an inflationary environment to see who can acquire the most money. NIRP is therefore perfectly compatible with capitalist and free-market ideas.
   7. NIRP would only persist as long as the desire for saving outweighs desire for borrowing. As soon as this ceases to be the case, market rates and then central bank rates should become positive again and credit expansion and later, inflation would return.
   8. The NIRP interest rate is determined by the credit markets, and the central bank simply reflects its estimate of that credit market rate in its own rates. Alternatively, the central bank may attempt to follow a deflation target, this works like an inflation target, but they try to prevent the actual level of deflation exceeding target, in order to stave off the possibility of a deflationary spiral.
   9. If the government takes the opportunity of negative rates to borrow excessively, then sooner or later government borrowing demand matches private sector saving demand and rates turn positive again. If the government has spent the borrowed money unwisely, it will still be in a hole.
   10. NIRP does not necessarily mean that retail borrowers can borrow at negative rates. It simply means that the return a bank expects on lending is negative in aggregate and that to make a reasonable profit it has to charge interest or fees to its depositors.


So, NIRP, combined with PIRP, and sensible deficit/public spending decisions, is a monetary framework that is symmetrical and can offer global society a means of dealing with contractionary circumstances like pandemics, climate change and demographics, as well as working during the good times. Cash and electronic bank reserves are a debt liability of the central bank/government (and thus by an extension a debt liability of all society), there is therefore no inherent moral reason why society must choose to promise any particular attributes of those liabilities.

Why should we be limited to having a monetary system that only works for growth and good times? How is that sensible?
 

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1 hour ago, scepticus said:

That's the wrong way around. Long before hunter-gatherers and the first sedentary societies used money, some of them must have shared their food and labour with others on the understanding they would be repaid in kind. Thus the concept of debt and credit enters the picture of human society long before money as a medium of account or exchange.

Also, while it is possible to operate a society without employing the concept of money, it is not possible to do so without employing the concept of  debt.

Scepticus is correct. At least according to the anthropologist David Graeber in his book, Debt: The First 5,000 Years. Credit pre-dated money (and barter). I read it earlier this year and would recommend it.

Back to negative interest rates. If this were applied to normal savings accounts (even via a fee), I would simply offset that by saving more. Less money spent in the local economy.

Edited by Voice of Doom
Autocorrect error....
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5 minutes ago, Voice of Doom said:

Back to negative interest rates. If this were applied to normal savings accounts (even via a fee), I would simply offset that by saving more. Less money spent in the local economy.

You might do, but that doesn't matter as long as others don't.

If everyone does try to do this, the rate would naturally become more negative until following this tactic becomes mathematically impossible.

In reality the vast majority of people have little or no savings anyway, so I can't see much reason why such committed no-matter-what savers could not be accommodated. 

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21 minutes ago, scepticus said:

To return to the thread topic (and at the same time ignore the incredibly dull and repetitive libertarian zealotry).

The goal of NIRP is to ensure credit markets can clear and that money keeps circulating during contractionary and deflationary periods. In turn this serves to protect jobs, sustain innovation and to maintain a fair and balanced economy that is not predicated on eternal inflation and expansion. 


Here are some assertions about its effects. See if you agree.

   1. It is not a stimulus, it is a mechanism to accommodate deflation without preventing it.  
   2. It will only apply during a deflationary economic period; thus the negative nominal rate of return on money should be at least partly offset by falling asset prices.
   3. It cannot work unless banks pass negative rates on bank reserves onto retail customers in the form of a negative interest rate, or fixed banking fees.
   4. The income the central bank receives from the negative interest rate is not spent back into the economy, it is simply deleted. This in turn means that the money supply will shrink during NIRP - another reason why NIRP is not stimulative. In fact, there is no stimulatory way of spending this CB interest income back into the economy that is not contractionary.
   5. It does not hurt the poorest in society since the poorest in society who: have no savings, exist entirely on benefits, benefit the most from falling price levels. The most badly affected are the rich with large cash holdings or with assets that suffer losses due to deflation.
   6. NIRP is a free-market competition in a deflationary environment to see who can lose the least money in nominal terms, like PIRP is (or should be) a competition in an inflationary environment to see who can acquire the most money. NIRP is therefore perfectly compatible with capitalist and free-market ideas.
   7. NIRP would only persist as long as the desire for saving outweighs desire for borrowing. As soon as this ceases to be the case, market rates and then central bank rates should become positive again and credit expansion and later, inflation would return.
   8. The NIRP interest rate is determined by the credit markets, and the central bank simply reflects its estimate of that credit market rate in its own rates. Alternatively, the central bank may attempt to follow a deflation target, this works like an inflation target, but they try to prevent the actual level of deflation exceeding target, in order to stave off the possibility of a deflationary spiral.
   9. If the government takes the opportunity of negative rates to borrow excessively, then sooner or later government borrowing demand matches private sector saving demand and rates turn positive again. If the government has spent the borrowed money unwisely, it will still be in a hole.
   10. NIRP does not necessarily mean that retail borrowers can borrow at negative rates. It simply means that the return a bank expects on lending is negative in aggregate and that to make a reasonable profit it has to charge interest or fees to its depositors.


So, NIRP, combined with PIRP, and sensible deficit/public spending decisions, is a monetary framework that is symmetrical and can offer global society a means of dealing with contractionary circumstances like pandemics, climate change and demographics, as well as working during the good times. Cash and electronic bank reserves are a debt liability of the central bank/government (and thus by an extension a debt liability of all society), there is therefore no inherent moral reason why society must choose to promise any particular attributes of those liabilities.

Why should we be limited to having a monetary system that only works for growth and good times? How is that sensible?
 

Scep. Do you mind if I share this post on another forum.

 

Brilliantly put by the way. Welcome back.

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35 minutes ago, scepticus said:

To return to the thread topic (and at the same time ignore the incredibly dull and repetitive libertarian zealotry).

The goal of NIRP is to ensure credit markets can clear and that money keeps circulating during contractionary and deflationary periods.

 

But deflation means falling consumer prices, doesn't it? So CPI would need to be negative before it can be claimed we have deflation.Do you see that happening?

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2 hours ago, scepticus said:

That's the wrong way around. Long before hunter-gatherers and the first sedentary societies used money, some of them must have shared their food and labour with others on the understanding they would be repaid in kind. Thus the concept of debt and credit enters the picture of human society long before money as a medium of account or exchange.

Also, while it is possible to operate a society without employing the concept of money, it is not possible to do so without employing the concept of  debt.

If you read my post carefully I meant money as debt. Not a debt itself. Oldest historically documented money are commodity based money,  Mesopotamian shekel.

I am not sure that debt existed from the very beginning of the humanity. I would guess that is probably not the case as there are gift societies.  People are sharing their resources with any expectation of getting it back. A family usually operates in this way. When you share food with your wife you don't treat it is a debt and you don't keep accounts.   

Of course a term debt needs to be properly defined as it is could be anything from informal bilateral expectation to more formal transferable arrangement supported by a accounting system, law and its enforcement.   You need also make a distinction between a claim and a debt. 

 

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9 minutes ago, Biggus said:

But deflation means falling consumer prices, doesn't it? So CPI would need to be negative before it can be claimed we have deflation.Do you see that happening?

I agree negative CPI is required to justify NIRP in the long run. However recall my point is that credit markets and debt markets (primarily markets in government debt) set the rate of interest. If the market rate in these markets turned negative before CPI turned negative then it would be OK to set the CB rate to follow the market before CPI turns. However one would expect CPI to follow.

The point of a CB interest rate is to allow credit markets (and by extension the rest of our economy) to function normally. Trying to use interest rates to precisely control the short term price level is a futile exercise whether in an inflationary or deflationary environment.

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32 minutes ago, Panda said:

Scep. Do you mind if I share this post on another forum.

 

Brilliantly put by the way. Welcome back.

Thanks - by all means share elsewhere as long as you post a link back to my original post, and promise to report back with what reaction you get.

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4 minutes ago, scepticus said:

I agree negative CPI is required to justify NIRP in the long run. However recall my point is that credit markets and debt markets (primarily markets in government debt) set the rate of interest. If the market rate in these markets turned negative before CPI turned negative then it would be OK to set the CB rate to follow the market before CPI turns. However one would expect CPI to follow.

The point of a CB interest rate is to allow credit markets (and by extension the rest of our economy) to function normally. Trying to use interest rates to precisely control the short term price level is a futile exercise whether in an inflationary or deflationary environment.

With energy costs falling off a cliff and really low velocity I would not be suprised to see negative CPI, at least in the short term.

Negative rates have already been imposed.

'The UK sold £3.75 billion in 2023 gilts at a negative yield of -0.003%'

https://www.zerohedge.com/markets/uk-sells-negative-yielding-debt-first-time

My feeling is that energy producers will be going bust in this climate. When demand increases prices will shoot up for lack of supply. Actions taken to prevent people benefiting from low prices now, which would be awful, will not be reversed and will cause inflation to be much higher.

 

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Money as debt comes into existence at the same instance that money comes into existence, because as soon as a society declares that X amount of commodity Y is money and is exchangeable for goods (and perhaps tax obligations) anywhere, society has now chosen to take on a liability of exactly the same amount, since they now collectively "owe" that amount of goods to the holders of the money. If this were not the case, the money is not actually worth anything or performing its function.

The flip side is that society also gains an asset of exactly the same amount, which is the stock of commodity money. So the liability belongs to all of society, and the asset side is distributed to whomever happens to hold quantities of commodity X.

The situation with fiat money is identical, a amount of cash (paper and electronic) is declared to be money, and as I explained before this is accounted for as a liability of the government (vis a vis society). The asset gets distributed over those people who hold the fiat tokens.

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Just now, Biggus said:

With energy costs falling off a cliff and really low velocity I would not be suprised to see negative CPI, at least in the short term.

Negative rates have already been imposed.

'The UK sold £3.75 billion in 2023 gilts at a negative yield of -0.003%'

https://www.zerohedge.com/markets/uk-sells-negative-yielding-debt-first-time

My feeling is that energy producers will be going bust in this climate. When demand increases prices will shoot up for lack of supply. Actions taken to prevent people benefiting from low prices now, which would be awful, will not be reversed and will cause inflation to be much higher.

 

We have seen the first stages of NIRP but not the real NIRP regime because negative rates have never been passed properly to retail savers. Muddled thinking has also seen negative rates combined with attempts at stimulus like QE.

 

 

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1 minute ago, scepticus said:

We have seen the first stages of NIRP but not the real NIRP regime because negative rates have never been passed properly to retail savers. Muddled thinking has also seen negative rates combined with attempts at stimulus like QE.

 

 

But would negative rates for retail banks might cause bank runs. When people start pulling their cash out of the bank to put cash under the matress the banks may not have enough reserves. Lack of reserves creates fear of losing savings in the bank leading to a bank run. How will such a thing be prevented?

 

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