Something seems very wrong.
The only way to benefit is to borrow and invest that money, which is exactly what the fed wants (with the expectation that productive investments will boost economic growth).
I think the real issue is that if you're paying -5% for a loan. It's rational to invest that into something that returns -1% (and profit by 4%). This means people are incentivized to invest in unproductive resources... Which might be a bad thing in the long run.
Simply introduce an exchange rate between the dollar and it's physical representation.
Barriers are largely people's lack of understanding of how this works and how huge the benefits would be for society.
Maybe if you think government and society are the same thing.
No, I just think that neutral monetary policy which leads to full employment (defined as natural employment under given tax/regulatory regime) is good for society.
Also good for govt's ability to manage budget, but that's secondary.
Someone would need to propose a specific law. A law that says 'you may only contract with [insert privileged electronic currency here]" or something similar.
If the enforcement is through confiscation of other currencies it will likely violate 4th amendment protections on personal effects.
If certain contracts are banned (instead of, or in addition to, confiscation) it would violate speech protections. Exchanging money (in any form) is speech, as are your contractual dealings.
An argument as to how restricting the use of cash (or eliminating the use of cash entirely) inherently conflicts with the first or fourth amendments.
> A law that says 'you may only contract with [insert privileged electronic currency here]" or something similar.
The usual method would be more like "All damages, including -- but not limited to -- those for breach of contracts specifying payment in some other currency, shall be awarded and assessed in [privileged currency] as of the date the debt became due and payable."
> If the enforcement is through confiscation of other currencies it will likely violate 4th amendment protections on personal effects.
That's a creative argument, but, no, Fourth Amendment search and seizure protections do not prohibit confiscation of contraband.
> If certain contracts are banned (instead of, or in addition to, confiscation) it would violate speech protections.
Contracts that are contrary to public policy -- such as those whose fulfillment requires an act prohibited by law -- are generally void for that reason; this is a well-settled principal of law and is not contrary to the First Amendment. The idea that the First Amendment means any contract obligation, without restriction, is immune from prohibition is, well, silly in the extreme.
http://gawker.com/5729214/honey-buns-are-the-new-prison-curr...
Isn't this a foolish proposition, considering the out of control speculation that occurred when interest rates dropped to near-zero? With negative rates, banks will only be rewarded further for acting recklessly.
I think the honest thing to do would be to let all of these irrational and highly-leveraged investment environments collapse so that we can have a chance of starting over with a clean slate.
If you could get an interest-only mortgage at zero rates, why wouldn't you buy the largest house the lender would allow?
What's the impact on the environment?
On the issue of penalising savers: passive savers can't expect a good risk-less return on their investment when there isn't the economic growth to support it. Savers are basically asking for a free lunch while everyone else is suffering from depressed incomes and profits when they complain about the Fed's base rate decisions penalising savers.
Is this really what is being addressed here?
It seems more likely that the fed is just pushing harder on the same string.
And maybe trying to address in exactly the wrong way.
Let's say I'm trying to save for retirement. If, during retirement, I'm going to be able to earn 4% return, I need some amount. If I'm going to earn 0.1%, I need a lot more, so I'd better save a lot more now. And if interest rates go negative, then I have to save even more...
So this approach may not actually lead to decreased saving.
Firstly, I very much doubt you will see negative rates within consumer or retail products, or even attached to the rates seen by pension funds who usually don't sit on cash held in cash saving accounts held with the Fed.
Secondly, I would think that if I were pension fund manager or an individual saving for retirement and I somehow encountered negative rates that persisted for cash savings, I would look for other types of investments that offer higher returns, or in the case of individuals, just spend the money as going to the cinema has greater utility than getting 0% returns on your investment. You would have to pessimistically assume that there are no viable investment opportunities with returns above 0% for your thought experiment to carry some water, which seems very unlikely.
Also, the base rate is only really encountered directly by Banks that have accounts with central, in the case of the US, or regional central banks. A normal company and even very large non-bank firms don't typically have accounts with the central bank. For consumers and most businesses the interest rate set by the fed is more of a benchmark that ends up being used to help calculate the returns of other products.
Second, NIRP is designed to push money from low risk vehicles to high risk vehicles, including the stock market, and further inflate the current bubble.
I didn't think so.