News today revealed that the European Central Bank (ECB) has initiated negative interest rates for banks along with other measures in order to “stimulate” economic activity. These are the manipulating tactics that have led to bubbles and defaults, not to any real increase in economic activity. It is also a sign of a dying economy brought on by Keynesian monetary policies and central planning by the state.
In addition to actual negative interest rates being instituted when commercial banks park their surplus money, these same banks will get an interest rate incentive, very cheap money in other words, to borrow from the same central bank that is imposing the negative rates. The stated objective is to attempt to force more lending by the member banks to business, thereby helping to increase economic activity. The more banks lend, the more they can borrow, thereby increasing the supply of money and credit, and forcing business activity where none is desired by private capital. While this may sound plausible to those who do not understand the underlying risks involved, it is nothing more than a stratagem of desperation.
The ECB cut its rate of interest paid to banks from zero to -0.1, and its benchmark rate from 0.25% to 0.15%. This is the first major central bank to go to a negative interest rate, but it will not be the last.
One of the reasons I am talking about this matter is because I would expect the same strategy to be implemented by the Federal Reserve Bank here in the U.S. in the not to distant future. As far as I’m concerned, this is just the next step in what will turn out to be a failure of policy by the central banks to prop up an economy that has already been decimated by those same central bank’s interference and manipulation.
This will be another step in the destruction of savings, and in the expansion of credit. Since savings is what drives positive economic activity, and consumption can only be a result of that savings, without the benefit of that savings, economies will eventually implode. This could cause the ultimate in what might be described as a universal economic domino theory, and one that would cause massive economic distress around the globe.