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I've recently read a few articles where "negative interest rates" have been suggested as a possible option for central banks to use to help the economy improve.
I'm unsure how they work or if they would work at all. I'm guessing that they would be the Banks rate and not applicable to mortgages, savings etc, so what would be the impact of them on the average person? Would they be seen as a panic option and further erode confidence in the economy? Has there ever been negative interest rates before?
You can't actually have negative interest rates. This is commonly known as "pushing on a string".
What the central banks can do is have very low interest rates and where the rate of interest is below the level of inflation this means you have negative [u]real[/u] interest rates.
Quantitive easing (creating money and using this to buy up government bonds) is another way to increase the money supply and thereby have a similar effect to lowering the interest rate.
I had a Hitachi credit card one that charged 24% apr, as I bought something on it to get its interest free period.
I paid it off on a direct debit but it carried on paying into it, at which point they started paying me 12% apr.
That must be a negative interest rate on a credit card, surely?
What the central banks can do is have very low interest rates and where the rate of interest is below the level of inflation this means you have negative real interest rates.
isn't that happening now, with inflation up at 4.5% and interest rates at .5%?
Indeed it is - folly in my opinion, but that is where we find ourselves.
Could we not simply argue that nothing needs to be changed? It took a fair amount of time to get into this mess and it isn't going to be resolved overnight.