Negative Interest Rates are on the Horizon

Negative Interest Rates are on the Horizon

If you thought, as the mainstream media reports, that the economy is back on track and the Obama Administration has taken us from the brink of a world-wide depression, you would be wrong. The housing “bubble” invited many unqualified people to buy houses and see their value skyrocket, only to crash in 2008 and 2009 due to unrealistic expectations and inability to repay the loans. But there was much more to the problem than unqualified loans, and in spite of a claimed unemployment rate of only 5% in the U.S., we are also facing an unprecedented number, now almost 100 million workers, who are out of the workforce and many more who are underemployed and seeking better opportunities that just do not exist.

One answer to has has been to make money cheaper. The Federal Reserve has had the short term lending rate to other banks pegged for several years now at o.25 percent, which in theory should make money “cheaper” to borrow to stimulate the economy. One of the primary ways that the Federal Reserve shapes the economy is by setting these short term borrowing rates to either stimulate the economy, or conversely, to slow inflation by increasing the cost of money, thereby decreasing borrowing. However, with the rate so low for so long, there is almost nowhere to go for the Fed, and the economy is still sluggish, so the search is on for new ways to get things moving.

The new thought now being considered is a negative interest rates where the banks charge the consumer to hold their money rather than paying for that privilege. So hang onto your wallet, if you thought earning one half of a percent on your savings account was pitiful, think in terms of paying the bank to “warehouse” your money for you.

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