NEW YORK TIMES: Switzerland is introducing a negative interest rate on deposits held by lenders at its central bank, moving to hold down the value of the Swiss franc amid turmoil in global currency markets and expectations that deflation is at hand.
The Swiss National Bank said in a statement from Zurich on Thursday that it would begin charging banks 0.25 percent interest on bank deposits exceeding a certain threshold, effective Jan. 22.
The bank acted as the crisis in Russia and plummeting oil prices have caused a run on emerging market currencies. Switzerland, known for its fiscal rectitude and banking secrecy, tends to attract capital inflows as money flees chaos elsewhere. But that puts pressure on the franc, threatening to make exporters less competitive and raising the risk that very low price pressures will tip the economy into outright deflation… (more)
EDITOR: The negative interest rate is the logical result of ‘austerity policies’ practiced across Europe (and to a lesser degree) the USA since the Great Recession of 2008. Instead of ‘jump starting’ the economy through greater fiscal stimulus (larger federal budget deficits), government spending was reduced supposedly to balance budgets.
Of course that doesn’t occur, because more people out of work means more unemployment and welfare payments and less tax revenue. A big problem with this world is that people prefer myths over facts. No one listens to economists, even when almost all are in accord.
So with the economy in the tank, there are few attractive investments and much cash and near cash sitting idle. Interests rates plunge, and eventually, especially given concerns about the value of currencies like today, the rates turn negative.
What are the banks to do with money that no one wants to borrow?
