This is really going to end up biting everyone in the ass though.
What happens when we have another market crash and everyone is broke because they put money they would have saved into investments instead and now they have no safety net?
What happens when we have another market crash and everyone is broke because they put money they would have saved into investments instead and now they have no safety net?
https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2283~2ccc0749...
One problem that becomes a bit hard is that in the retail sector if interest rates go below zero people are willing to simply withdraw the money, which would hurt banks' ability to lend. (Eg. the central bank would have to add funding via some mechanism, such as lowering the fractional ratio, or QE . [Or paying interest on reserves. But that would go against the negative interest on excess reserves.])
The paper concludes that the negative interest rates resulted in more loans.
How did holding money become so worthless in the first place?
Can this really be natural, or is there massive central bank shenaningans behind it? Clearly savers lose, but who benefits?
If that economy expands without corresponding increase in the money supply, then prices go down (because there are more stuff, but the same amount of money, so the same amount of money now represent more stuff). But this represents a deflation, which would auto-magically counteract the expansion, because it would incentivize people to wait and spend just at the last minute. (Time value of money and all would revert, wages would fall, fixed amount mortgages would start to spiral out, and all the regular deflation doomsday scenarios.) So the central banks make sure that even in an expanding economy the money supply "stays ahead" of the expansion of the economy. Targeting 2%. (And usually falling short, so inflation is somewhere between 1-2%.)
So holding money did not became worthless, quite the opposite, holding cash is now better than holding it in a bank. But the central bank has only a few policy tools available, and one of them is the interest rate manipulation.
The central banks want to encourage people to make some investments, to take on some risk, or at least spend. Sure, one way is to simply fund the government, as that usually seems the least risky. And it's not like there's nothing to spend on - the Green New Deal and co, but governments are quite reluctant to do so.
That was all I was talking about. Why isn't that happening anymore?