The Phaserl


NIRP and You: What to Expect

by Adam English, Outsider Club:

“We’re taking a look at them … I wouldn’t take those off the table.”

Those are the words Fed Chair Janet Yellen used in a Congressional hearing a couple months ago regarding one of the most bizarre, and possibly most damaging economic aberrations of our lifetimes.

As the Great Recession wore on, we had to grapple with the consequences of zero interest rate policies. Now we’re facing the prospect of ZIRP becoming NIRP — negative interest rate policies.

Japan and a lot of Europe have already crossed over into this uncharted territory. The Eurozone recently delved even deeper into negative rates, and now we know the U.S. may as well.

Now is the time for us to get used to what this means for us, both for the NIRP in place in international markets, and for what it could mean if and when the Fed plunges us into the same mess.

Even Worse Lending

First and foremost, ultra-low interest rates are already changing how banks work. An equity market that has been rocky, but ultimately flat for a year-and-a-half, is only adding fuel to the fire.

Using ZIRP following the credit crunch that drove the Great Recession already hurt lending operations.

Though banks were particularly risk-averse and were only lending to those with the highest credit scores, reducing headline interest rates only made things worse by narrowing the spread between what banks can charge, and what they can pull in as profits.

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