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European Central Bank Implements Negative Interest Rate Policy


European Central Bank Implements Negative Interest Rate Policy

The European Central Bank has made history this week by announcing that it has cut its deposit rate from 0% to -0.10%. European commercial banks will now be charged to park money with the ECB. The US Federal Reserve has long implemented a strategy called "Zero Interest-Rate Policy" (ZIRP) in an attempt to stimulate economic growth. Will it follow the ECB with a "Negative Interest-Rate Policy" (NIRP)?

This New York Times article has a good review of what the ECB did and what it may mean for consumers. Below is an excerpt of its explanation of the basic theory of NIRP:

The theory is that when it becomes more costly for European banks to keep money in the E.C.B., they will have incentive to do something else with it: Lend it out to consumers or businesses, for example.

This NIRP policy doesn’t directly affect consumers. However, as the NYT article warns, consumers will likely be indirectly affected:

Banks will most likely pass these negative interest rates on to consumers, or at least try to. They may try to do so not by explicitly charging a negative interest rate, but by paying no interest and charging a fee for account maintenance.

If this experiment by the ECB shows any signs of working, it may give ideas to the US Federal Reserve. The worst possible scenario is that it only works a little in that the economy only improves slowly. A small improvement in the economy could be enough to encourage the Fed to implement NIRP here in the US, and like ZIRP, the policy could go on for years.

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Anonymous   |     |   Comment #1
Basically one will be paying the banks to hold your money. Back to putting your cash under a mattress.
Anonymous   |     |   Comment #21
Or they will charge a fee for everything you do, even logging in. Most banks in Europe already started to charge access fee or deposit fee or withdrawal fee ot ATM fee or balance inquiry fee or.........and when you add up all those fees, your are being charged for the money being in the bank and hence (negative rates).
Shorebreak   |     |   Comment #2
Attention Fed Chair Yellen. It's time to start raising short-term rates:

The economy added 217,000 jobs in May while the unemployment rate remained at 6.3 percent, according to the latest data from the Bureau of Labor Statistics. Analysts had expected 215,000 jobs to be added. That marks the fourth straight month of adding at least 200,000 jobs, the first time that’s happened since early 2000.
OldGuy   |     |   Comment #4
I don't think Janet Yellen reads the jobs reports.  She also never looks at the CPI data.  Rather, she tunes into CNBC and listens to the "bulls" and the "carry-trade" crowd constantly shouting "beware deflation." 
Anonymous   |     |   Comment #8
Job growth did not keep up with population growth so the numbers are, once again, specious. Another 7M jobs is needed. Wage growth is nearly half of what it should be, a lot of jobs are low pay part time, taxes are increasing and health and energy costs will necessarily skyrocket. The stock market has recovered to past levels and then some, a good thing for pensions and high net worth investors. Rates have to be marginally raised to slow the stock bubble, something the Fed says is not its concern but, of course, we know who started the ruckus. Beware, however, the consequences of higher rates. No one pays interest without a reason.
Anonymous   |     |   Comment #23
"If you trust the data from the Bureau of Labor Statistics and the Census Bureau's monthly Current Population Survey, it speaks to the ongoing weakness in the economy.  America's model of free enterprise was built on the hard labor of its small businessmen and businesswomen who served as the "incubators" for economic growth.  It looks like that aspect of the American economy is slowly but surely becoming extinct in the face of the post-Great Recession economic realities."

Anonymous   |     |   Comment #31
I agree.....Shorebreak is a big leftist and Obama supporter. Funny how Comrade Shorebreak does not mention that millions of people are out of the work force and not even counted as looking. Loser.
Shorebreak   |     |   Comment #35
That shows how ridiculous you are as a troll. You just got caught agreeing with yourself. HAHA!
Anonymous   |     |   Comment #32
Hey Shorebreak, your buddy
Obama Chews Gum During D-Day Ceremony

and spited on your sacrifices for this nation,
As a military man, tell us why are you still supporting the democrats. They are bringing illegals in this nation to invade and conquer and you are still proud democrat.
Shorebreak   |     |   Comment #36
I don't support either party but the Democrats are far better than the fascist alternative available in the Republican Party, which has been hijacked by extremists, determined to put this country back 200 years.
Anonymous   |     |   Comment #48
Shorebreak, you said fascist Republicans. I strongly disagree with your findings, name one event that make you think like that. You can say anything, but lying in a public forum is disgusting. If that is how the democrats think, I don't want to read another stinking lie from you.
Keep voting for the democrats, they need few more years to finish America and destroy the constitution. After that, whether you are democrat or republican or independent will be irrelevant, the Hispanics will take over and depress the host residents into poverty.
You will be voting for "Jose Gonzales" as your president or another Obama born in Kenya or another hateful immigrant who are even now despising the real Americans.
Where is you patriotism, what happen to your war trophies, do you defend this country or are part of this destruction.
Make up your mind and stick to it. I want you on the good side, not the destroyers side, think about next time you vote, the real patriots need you now.
Anonymous   |     |   Comment #59
I really can't tolerate those phony patriots. The John Birch Society adherents like the Koch brothers and Ted Cruz will attempt to undermine this country. They tried before and failed. We evidently have to chase them away once again.
Shorebreak   |     |   Comment #63
I stand by my post that the Republican Party has been taken over by fascists. We must save our country from the likes of the Tea Party.
lou   |     |   Comment #64
Shorebreak, I am a fan of your frequent postings and links in the forums, but if you think the people who are Tea Party aficionados are fascists, then you should revisit your history of the 20th century because you're trivializing the meaning of the word.
paoli2   |     |   Comment #80
"I like Coffee, I like TEA!  I like the group which does the best for ME! :)  (So far it hasn't taken charge "yet".)
Anonymous   |     |   Comment #69
#2, shorebreak, we have bigger problem in America than the interest rates or deposits. This is only a distraction to avoid Obama being exposed in the media for what ever he is. Obama and the democrats are taking away our liberties, the only thing left in America that made us Americans and now Obama is taking that away too.
susan   |     |   Comment #3
Thank goodness for those 3.04% PenFed certificate rates earlier this year.  I was lucky because I had some monies available to lock in for 5 years.  Perhaps I should have done 7 year maturities.

Can't believe we may go back to negative interest rates.
Anonymous   |     |   Comment #7
When have we ever had negative interest rates?
Anonymous   |     |   Comment #10
Anytime the inflation rate is higher than the interest rate earned on deposits.  The real inflation rate, not the Feds phony calculations.
Anonymous   |     |   Comment #12
Yes, negative REAL interest rates.
Anonymous   |     |   Comment #13
#7, we have been in negative territory since 2007-08, the democrats made you think otherwise, they are expert of cover up and fooling people.
Anonymous   |     |   Comment #15
That's not true #13. It didn't take you long to show up again with your misreading of facts. Speaking of cover-ups? Watergate, Iran-Contra, etc.
Anonymous   |     |   Comment #16
#15, Speaking of cover ups, let start with Obama birth certificate, phony, Obamacare is not a tax no it's a tax no it's penalty and they fooled the supreme court with lies. Unemployment, cover up, Benghazi cover up, Rice lies every time she shows her face on TV, immigration, boarder security, Iran, POW exchange Begdahl lies, cover up to cover the previous cover up, negative interest rates coming to USA, cover up, budget cover up, and the list will go few pages on from one cover up to the next one.
This administration is the worst in history and you are bringing something from the history books to cover up the present corrupt administration that does nothing else but cover up.
For your amusement, please read this:

Anonymous   |     |   Comment #22
#18, this is proof that the democrats are engaged in cover up, they made up that web site to cover up their cover up and dismiss the truth. Say ain't so.
Anonymous   |     |   Comment #25
Hilarious #22. A cover up to cover up the cover up, etc.
Anonymous   |     |   Comment #28
#15,18,25, that's why this nation is going down the hell hole, traitors and cover up trolls to cover the traces of the bad democrats.
In 25 years, if still alive, you will find yourself in the minority group, because the democrats in congress are already destroying this nation by opening the boarders and make millions upon millions illegals take roots. And when executive in the white house order for amnesty or citizenship, you become irrelevant democrats, because from that point on, you will vote for Hispanics senators and president(s) who will spit on you.
There is a fact that states in 25 years the Hispanics will be majority and this country will cease to exist as we know it. Thanks to the brainwashed unpatriotic democrats who still vote for the traitors, the whole nation is finished. and from your posts, I can see that you are one of them.
Anonymous   |     |   Comment #37
Oh come on now. Get a grip. You did it to yourself by demanding cheap goods and throwing your neighbor out of work. Reaganomics did more harm to this nation and unfortunately too many uninformed voters continue to follow that mantra while shooting themselves in the financial foot.
Anonymous   |     |   Comment #44
#37, people without vision dwell on the past. Hey buddy, the democrats are destroying this nation, right now this moment, and all you have to say is. lets bring something from 25 years back and hush up the present perils.
Only morons and Obama supporters do that.
Anonymous   |     |   Comment #54
Yawn. Fox News script, Fox news script, blah blah blah.
Anonymous   |     |   Comment #50
#15, Have ever heard of Barry Soetoro cover up, Monica Luinski cover up, Obama wanted to help Mursi (brotherhood) with money and arms to make him stay in power cover up.  I have a list of over 80 cover ups for the democrtas, do you want me to publish it?
Fring   |     |   Comment #5
Of course devaluing the EUR against the USD will improve their export economy...until the USD undergoes another round of devaluation...but then the EUR can be debased further. Finally, a truly sustainable economy is within reach!
Anonymous   |     |   Comment #6
No we won't go negative here's why: First, the Chinese own a huge chunk of our debt, and the last thing the U.S. wants is to have them go searching for yield elsewhere. That would really be a crisis! Second, Europe's negative rate environment will mean more more flows into U.S. debt, making the supply/demand balance shift to higher demand, meaning lower rates, but not negative rates. Third, when rates drop, bond values go up, meaning more money flows into bonds and away from risk assets like stocks. Finally, seniors and other savers have no other safe place to put their money, so banks and CUs will continue to compete for deposits, making DA the indispensable tool in today's heroic quest for yields.   
Anonymous   |     |   Comment #9
Looking at today's WSJ article on "health" of credit unions, some "favorites" on this list are mentioned AND the conclusion that jumps out (to me) is the cu industry needs more capital and if, as the article suggests, certain long-term cu loans are at risk, the cu's need to raise more long funds by long term CDs!
Anonymous   |     |   Comment #14
China represents about 7%, a sum that can easily be made up by "encouraging" US savers to invest in government bonds. There's a lot of money in 401K's, savings accounts, CD's and mattresses that the governing elite dearly want to get their hands on. 
Gaelicwench   |     |   Comment #20
My brother invested in government bonds through his TSP. He didn't lose one single dime back in '09....and anytime the market slipped. Follow the money....

And they aren't going to give up on trying to privatising social security either...
Anonymous   |     |   Comment #17
Anonymous   |     |   Comment #19
It figures. Just another piece of Alex Jones fear mongering.
Anonymous   |     |   Comment #24
#19, What!, are defending the banks hidden fees?
Alex Jones is feared by the democrats because he says it as is and the truth burns holes in the democrats.
Anonymous   |     |   Comment #26
#24: Alex Jones is one of the clowns on the right in business to sell stuff to his gullible audience.
Anonymous   |     |   Comment #27
5 things you can be assured that will happen on a daily Alex Jones show.

1. Fluoride will be said at least 100 times by Alex, and 50 times by his commercials.
2. Baby, Children, Kids will be hurt, damaged, killed by some on going paradox.
3. Alex knew and warned you 10 years ago about all events spoke of on that particular day.
4. His pseudo-scammer advertisers will sneak in the word patriot on all products they sell.
5. Alex will interrupt his guests constantly by saying "THEY ARE KILLING OUR CHILDREN!" then repeat number 2 on the list.

That pretty much leaves  the shows bumper music.
Anonymous   |     |   Comment #29
#27, the truth hurts, doesn't it?
Anonymous   |     |   Comment #45
#39, is that is why you must say the last word to justify your own lies.
Anonymous   |     |   Comment #11
Unfortunately we are a part of the now "world economy", so could it be as Europe goes, so goes the United States.
Anonymous   |     |   Comment #33
I only hope that peoplein Europe don't rush and put their money in our 10 yr notes because regardless of the US job growth and prosperity and getting back on our feet, that could cause our rates to go down/stay down by them buying up our notes since our rates will look high compared to their rates. The more people buying our 10 yr notes the lower the yeild...
Anonymous   |     |   Comment #38
We are the 'safe haven' and that's why people the world over put lots of money into our Treasury Bonds, Notes and Bills.
Ed   |     |   Comment #47
If the costs are passed to the depositors, watch as people will be pulling money out of banks.

The banks will topple faster than dominoes because they will be undercapitalized, magnified by its fractional reserve system.
Anonymous   |     |   Comment #49
It is the democrats in congress that destroyed the banking system as we know it by demanding loans without income in the early 2000. When Bush complained about it, the democrats accused him of discrimination and now you have it, a banking system ran by statutes and regulations and government demand for this and that and even gave them the fee schedule of the allowed charges.
Anonymous   |     |   Comment #58
Malarkey. See Greenspan's remarks, who is a libertarian.
paoli2   |     |   Comment #51
#47  Have you ever heard of Early Withdrawal Penalties?  Those people probably have a bulk of their money in CDs and can get hit hard by cashing out early.  You make it sound so easy but the more money they have, the more it will cost them to get out.
Anonymous   |     |   Comment #52
Paoli2, if the bank does not make profit on you, they will never let you out of the CDs. What Obama wants to do, is to make a financial tax on all cash transactions, whether writing a check or do an ACH is irrelevant, the tax is on the transfer IN or OUT of any thing, from stock brokerages to banks, keep that in mind, coming soon to America, presented by the democrats.
Anonymous   |     |   Comment #57
President Obama does not want to do anything with what you posted. Stop trying to think he is concerned with your little problem #52.
Anonymous   |     |   Comment #62
Won't happen. Quit whining.
Hoody   |     |   Comment #66
Savers are going to pay. Prudent behavior is precisely what current monetary policies are trying to stamp out. But savings used to be one of the drivers of real economic growth. Banks would lend that money to be used building a factory or a house, financing inventories, etc., creating economic activity along the way. Banks would attract that money by paying savers some interest. They’d then lend it out at a higher rate. The spread would be compensation for their role as intermediary and for shouldering the risk of the loans. Now that banks can get their money from central banks for free, savers have become the universal punching bag of monetary policy.
Anonymous   |     |   Comment #67
You nailed it. Also, after reading this thread I'm convinced the "divide and conquer" political strategy has achieved its first major goal...divide. Guess what's coming next. 
Anonymous   |     |   Comment #71
Wow, the right wing trolls are really out in force today. Austerity and wealth inequalty are the real problems.
Anonymous   |     |   Comment #74
#71, the left wing trolls are eating the dust out of the truth coming from the right wing patriots, how nice to see the left trolls are retracting and admitting defeat.
Anonymous   |     |   Comment #77
Right wing and patriot is an oxymoron. More apt description probably would be seditionist.
Hoody   |     |   Comment #72
Just a question on page form, why isn't there a DOWN vote click as well as the4 UP vote for these posts? I

I can see giving a + UP vote for posts I agree with,  I'd also like to be able able to give a - DOWN for those I disagree with.

The "report post" doesn't need to be there, that's what a site/blog moderator is for, I'm  not gona bother reporting people for their "thoughts"
paoli2   |     |   Comment #76
When one reads the tirades about Democrats vs Republicans, "left wing" vs "right wing" just on a financial blog like DA, you can understand why nothing serious ever gets done in Washington.  They probably hate each other more than their constiuents do and just spend their days bickering!  I say we all become INDEPENDENTS and start all over from scratch!
Anonymous   |     |   Comment #79
Very enterntaining and educational blog, I love it. Little bit of politics, little bit of common sense, little bit of money and I'm glad I discovered it.
Anonymous   |     |   Comment #81
With a whole lot of B.S. thrown in mix.  Unfortunately, threads hardly ever stick to the main topic.
Anonymous   |     |   Comment #83
The fed funds rate is .25%, if it were 0%, then subtracting management fees of MM funds would return a negative rate. This would effect large money brokers, friends of the fed, that move billions into MM funds for a few hours or days, between transactions. Only if a net gain could be attained, for these money brokers, would the fed move to negative rates. Also the FDIC would need a revision to accommodate a loss in principal. But it's a good bet that a room full of accountants are busy working on scenarios to make this work - that's stimulating the economy.
susan   |     |   Comment #84
I simply adore the idea of negative rates.  It will be so exciting.  The constant chatter about our dilemma  Perhaps banks will actually charge us for the security of keeping our money in their fdic insured bank.  Maybe a negative 1% rate as a fee for their "trouble".