Patrick Barron: Negative Interest Rates Demystified
Negative Interest, of negatieve rente in het Nederlands. Wat is het, hoe werkt het, wat doet het en wat zijn de gevolgen?
We’ve all heard about negative interest rates, but we may not really understand them– either conceptually or in terms of bond markets. Here to explain is our returning guest Dr. Patrick Barron, a longtime professor in the graduate school of banking at the University of Wisconsin.
How and why would interest rates ever be negative, when everyone prefers current consumption to future consumption? Can the “natural” or market rate of interest ever be negative? What going on in Europe that would make negative-rate government and corporate bonds attractive to investors? Will the ECB be forced to raise rates back into positive territory if Janet Yellen continues to raise the Fed Funds Rate here in the US? And will Congress resist steady rate hikes that could radically spike its annual budget outlay for debt service?