The year 2019 saw the continuation of “the world’s most bizarre financial experiment ever”, said Merryn Somerset Webb on MoneyWeek.com – “negative interest rates”. The European Central Bank and the Swiss National Bank were among those charging investors for the privilege of holding their bonds. There are now $16trn-worth of negative-yielding government bonds in the global economy – an unprecedented development.
No one knows what this means, or how much we should fear it. Perhaps, as former US Fed chair Alan Greenspan observes, “zero has no meaning”. Or perhaps it is a sign of something “more terrifying” to come. (The Week, 28 December 2019).
Negative interest rates are a tool of monetary policy used by the European Central bank to help stabilise the economy, but their effects long term are not certain. As I understand it, if there were a recession the central banks have already used all the tools available to effect a maximum stimulus, and this is the urgent and macro problem that we face in the future. Are there enough resources in reserve to withstand yet another new crisis that effects the world economy? The coronavirus comes to mind.