Negative interest rates threaten the financial system
In a negative rate environment, banks must pay to hold loans and securities. They would be punished for providing credit, which is the lifeblood of an economy
Former US Federal Reserve chairman Alan Greenspan recently said he wouldn’t be surprised if yields on US bonds turned negative and if they did, it wouldn’t be “that big a of a deal.” That seems to be a sentiment widely held incentral banking circles these days, but it’s wrong.
Negative interest rates represent a threat to the financial system. To understand why, let’s start with the existing fractional reserve banking system, which is ...
