Stephen Poloz Considers Negative Interest Rates
Price controls on interest rates are the latest fad.
A 100-year-trend that’s picked up steam in the last 15 years, where central banks have been confident enough to blatantly ignore the supply and demand for loans and keep rates as low as possible.
How low can you go?
For Bank of Canada Governor Stephen Poloz, it’s below zero.
In a four-page pamphlet, the BoC makes its case for negative interest rates because, “the nominal return for holding currency is negative, due to storage, transportation, insurance and other costs associated with securing and storing bank notes, particularly in large quantities. These costs make it possible for nominal interest rates to fall somewhat below zero.”
Poloz makes it sound inevitable.
In his worldview, interest rates are like playing with the shower faucet. Sometimes too much water is coming out, sometimes it’s not enough. Sometimes the water is too hot, sometimes it’s too cold.
It is the Bank of Canada’s job, so goes the thinking, to regulate this flow of water as to “promote the economic and financial well-being of Canada,” or even more hilarious, “to preserve the value of money by keeping inflation low and stable.”
That’s not what interest rates are for.
Interest rates coordinate production and consumption decisions over time. Some sectors are more sensitive to rates than others.
If interest rates rise, people won’t spend less in general. They will spend less on particular things, most likely real estate.
Low oil prices and a “weak” loonie (73 cents to the American dollar at the time of this writing) are not the fault of some mysterious force in capitalism.
It is the belief of central banks and governments that cutting rates is a fine way to get oneself out of an economic recession.
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