I'm trying this again, with proper thread format. Central bank initiated NIRP is poison to a financial system & the dumbest idea in the history of economics.
1)It's a tax. A tax on bank capital housed at a central bank that someone has to eat, either the bank itself or they pass it on to their clients. Taxes aren't stimulative.
2)It would blow up the $4T+ money market industry as money would flee and this money finances gov't repo's, commercial paper, CD's, etc...
3)It would damage bank profitability, which is the lifeblood of SME business lending & big help to large ones that also have access to cap markets. To remind you, Japanese bank stock index is down 92% since '89. The Euro STOXX bank stock index is down by 89% from its '07 high.
4)In Europe some banks have passed the tax on to retail deposits. There is a story that UBS is offering its high deposit clients a payment holiday for a few mo's from paying the neg rate penalty for keeping $ at the bank. They are doing this because $ is leaving the bank.
5)It hurts insurance companies and pension funds that have little low risk options for meeting their investment return goals.
6)It crushes the saver and retiree.
7)It has created a massive bubble in sovereign bonds that will be a complete mess when reversed considering the large debt taken on that NIRP encourages.
8)It therefore becomes a trap for central banks because of the potential damage to bond prices when unwinding it.
9)The Swedish Riksbank saw the error of its negative rate ways and got its benchmark rate back to zero, but only zero. Even the BoJ realized the damage done as they stopped at a negative rate of 'just' .10% years ago.
