🔴 Negative Interest Rates Explained (w/ AK)

TL;DR

Negative interest rates, although initially counterintuitive, have been implemented by several countries since 2009 to stimulate their economies and are becoming more plausible in the US.

Transcript

Every week in 2019 keeps getting crazier. We got inverted yield curves. We got traded wards We got negative interest rate and the negative interest rates in particular They might seem backwards to a lot of people but actually they've been around for years The first country to dip their toes in was Sweden back in 2009 right after the great financial... Read More

Key Insights

• ☠️ Negative interest rates have been implemented since 2009, starting with Sweden and later followed by the European Central Bank and Danish banks.
• 🤑 Negative interest rates incentivize borrowing and spending but may discourage lenders from loaning money.
• ☠️ Central banks use asset purchases and interest rates to manage the economy, although negative interest rates were previously considered impossible.
• ☠️ The US may not implement negative interest rates currently, but external factors can influence their decision.

Questions & Answers

Q: How do negative interest rates work?

Negative interest rates work in reverse, where borrowers owe less money over time. For example, with a negative 10 percent interest rate, you would only owe $90 for every $100 borrowed after a year.

Q: Why would lenders loan money with negative interest rates?

Lenders may be discouraged from loaning money due to negative interest rates as they could keep the money for themselves without any credit risk. However, it incentivizes borrowers to borrow more and stimulate economic activity.

Q: How do central banks use asset purchases and interest rates to manage the economy?

Central banks use asset purchases and adjusting interest rates as tools to stimulate or cool down the economy. Asset purchases involve buying assets to inject money into the system, while interest rates affect borrowing costs and spending.

Q: Is the US likely to implement negative interest rates?

While the Fed has stated they are not currently looking to implement negative interest rates, they consider it as one of the tools in their toolbox. Factors like global economic conditions and potential crises may influence their decision.

Summary & Key Takeaways

• Negative interest rates have been around since 2009, starting with Sweden, and are now being implemented by the European Central Bank and some banks in Denmark.

• These rates work in reverse, where borrowers owe less money over time, incentivizing borrowing and spending.

• Central banks use asset purchases and interest rates to manage the economy and stimulate interaction between borrowers and lenders.