03/31/2016
One of the most interesting theories in financial markets today is that Negative Interest Rate Policies (NIRP) create a situation of Negative Compounding. Conceptually an individual's savings would not only face deterioration through the normal impact of inflation, but would also be penalized by negative interest. Currently the European Central Bank (ECB) charges member banks 0.4% to hold its cash overnight. Countries such as Sweden, Denmark, Switzerland and Japan have instituted negative interest rates. If you think this could not happen in the U.S., consider the fact that in November Janet Yellen, the Federal Reserve chair, provided that a change in economic conditions could put negative rates "on the table" in the U.S. So what exactly would that mean for us? More to come.
