As coronavirus drives the world toward zero rates, we're all becoming Japan (LA Times)

[bronxiteforever]

Via Bloomberg
By ENDA CURRAN AND BEN HOLLAND Bloomberg
MARCH 15, 2020. 6 AM

There aren’t many precedents for the trauma that financial markets have suffered last week, as the coronavirus crisis drove U.S. stocks into a bear market and briefly sent yields on every Treasury bond crashing below 1%.

But there may be a precedent for the hole that policy makers find themselves in when the dust has settled. Just not an American one. The developed world’s last great holdout looks like it’s joining the Japanification club.

...“We’re essentially at the Japanese place,” former Treasury Secretary Larry Summers told Bloomberg Television on Thursday. “That’s a place that’s very hard to get out of.”

Conditions that don’t feature much in economics textbooks have been the norm in Japan for decades. Benchmark interest rates have been near zero or below, yet households and businesses still don’t want to borrow, leaving traditional monetary policy without traction... Since 2008, most developed economies have looked at least a bit like that, and the growing damage inflicted by the coronavirus may be speeding up the convergence. Slow-growing Europe has already gotten used to negative borrowing costs. While the U.S. isn’t there yet, trend-lines are pointing in that direction — posing a challenge to Fed officials when they meet this week.

Even if the central banks do act, it may not help much.

More here
https://www.latimes.com/business/story/2020-03-15/coronavirus-low-rates

[cos dem]

1. Can someone explain negative interest rates?

If I have money, why would I lend it out, and then have to pay someone for the privilege of borrowing my money? Wouldn't I prefer just to sit on the cash?

I could see it if the economy itself was deflationary, if the rate of deflation was worse than the negative interest rate, but it seems like it would have to be a long-term deflation, which would be catastrophic.