Since the European Central Bank implemented negative interest rates, and the Bank of Japan has followed suit to ensure that it does not fall behind, we often hear news about negative interest rates. So what exactly are negative interest rates? For example, if you borrow money from a person, the end result is that he pays you back the interest. We wonder how such a thing is possible, unless the person is out of his mind. But the actual situation is that in the world we live in, there is such a situation. Negative interest rate policy has already existed and emerged, and in Europe and Japan, this problem does not rule out becoming a new normal.
Let me tell you a joke, there is a female entrepreneur, a small and micro enterprise, and then she wants to apply for a loan from the bank. One day, the bank will call him and say congratulations, your loan has been approved, and then our bank will give you How much is the interest? 0.0172%, this is definitely very, very cheap for us in China, so the lady was very happy and asked if I follow this interest rate, how much interest will I pay to your bank every month? The bank replied, Miss, you heard it wrong, the interest we give you is -0.0172%, and the bank will give you money every month in the future, not you. When the lady heard it, it was unreliable, it was a phone scam, how could such a good thing happen, the bank became a philanthropist? In fact, in Europe, this phenomenon occurs not only in small companies, but also in large companies. How could this happen?
The ECB has now started charging negative interest rates on the excess reserves deposited by commercial banks in the accounts of the ECB (started when the negative interest rates were implemented). In addition to the ECB, there are Denmark, Sweden, and Switzerland. These central banks are also doing the same. That is to say, commercial banks will be fined if they deposit in the central bank. This phenomenon currently only exists between commercial banks and the central bank. However, after the European Central Bank’s quantitative easing, ordinary people’s deposits may also occur. Negative interest rates. That is to say, if I go to the bank to deposit a sum of money, the bank will not only give you no interest, but also fine you the money throughout the year. You may still not understand why the European Central Bank has this negative interest rate? What is the reason and logic of this thing?
1. The European Central Bank imposes negative interest rate penalties on commercial banks (if you deposit money with me, I will fine your money), what is its purpose? If you are forced to lend money , I will punish you if you don’t lend money. Who did you lend money to? Just like the female entrepreneurs in the joke we just talked about, they must release their money anyway, because these enterprises can do R&D and launch projects after receiving loans, which will stimulate the job market and the economy will grow. Europe can get out of the economic recession. This is an important purpose, forcing banks to lend money, and allowing the lending to enter the real economy to promote the vitality of the real economy.
2. What if these commercial banks cannot find suitable lenders in the Eurozone? Then get these euros out, get them to other countries, and outside the euro zone, let me release the money. Why do you want to do this? Because as long as the euro flows to other regions, the euro will depreciate relative to other currencies (because the number of euros on the market increases). If this depreciates, then the entire export competitiveness of the euro zone will be improved. In this case It will also speed up the operation of the economy and increase the vitality of the economy.
These are the two most important core logics for implementing the negative interest rate policy. When you think about it, there seems to be no big problem with this logic. It sounds reasonable, but there is a faint feeling that there is a problem with this logic. If this logic is true, it means that printing money can save the economy. We all know this. There has never been such a situation in history. How can printing money make the economy prosperous? If it’s that simple, then everyone can just print money and have fun. Obviously, such logic is actually flawed. So where is the problem?
Former Federal Reserve Chairman Alan Greenspan put forward a very interesting example (speech given to the American Foreign Affairs Association in New York, USA in October 2014) to illustrate the negative impact of the negative interest rate policy: there are two farmers, one named Zhang San, One is Li Si. Zhang San is hardworking and brave, and he doesn't spend money randomly, so he gradually accumulated wealth. Li Si enjoys his time in time, the moonlight family, spends money when he has it, and never saves it. As a result, after one year, Zhang San saved 100 catties of grain, but Li Si had nothing on hand. The next year is spring, and now there is a problem. Well, Li Si has no grain seeds because he has already consumed them last year. If Li Si wants to continue planting crops, he needs to ask Zhang San to borrow them. Zhang San In other words, grain can be lent to you, but during the autumn harvest, I will lend you 100 catties of grain, and you will return me 110 catties of grain, which is reasonable and no problem. This is equivalent to 10% interest. At this time, Zhang San also agreed, and Li Si also agreed, and everyone thought it was very good. Although Zhang San lent Li Si the precious grain he saved, he will get more grain (or investment income) during the autumn harvest. As for Li Si, if he can borrow grain seeds from Zhang San, He is also very happy that he can continue to maintain this timely life. This is the natural rate of interest formed in the natural market. But one day the government intervened, and the government said no, we are now going to implement a negative interest rate policy, and this is not allowed, 10% interest is not acceptable, we only allow you to charge -1.0%. Zhang San was furious when he heard it, what? -1.0%? I lent him 100 catties of grain, and he only returned me 99 catties? Only people with water in their heads would do this, but Zhang San was determined not to borrow it. The government will punish you if you don't borrow. Zhang Sanyi heard that he wanted to be punished, what should he do? Just eat all the food that has been saved, and throw away what you can't eat. Anyway, I just don't lend it to Li Si.
In the middle of this example, let's look for the logic behind it. What is that 100 catties of grain? It is really saving. When Zhang San lent the 100 catties of grain to Li Si as seeds, Li Si cultivated these seeds. In this process, savings are transformed into capital. It should be noted here that many people confuse capital with money, and money and capital are different. Capital must be used in production activities to expand reproduction and create more wealth. This kind of money is called capital. And the money you deposit in the bank is not called capital. So what is savings? Real savings is not the number of bank accounts we understand now, 10,000 yuan, 20,000 yuan, that is not called real savings, it is called a number. Currency is only a receipt of real wealth (this point was mentioned in yesterday's phenomenon analysis), it is not wealth itself. What is really savings in the example? It is the grain behind it, the real economic resources saved by the entire economy, steel, oil, etc. These are called real savings. It is impossible to increase real savings by printing money. So real savings will not be affected by whether you print more or less money.
So through examples, we push forward, what conclusion will we get? When the interest rate is positive, say 10%, the process of converting savings into capital is smooth. We could call it capital formation. But if you adjust the interest rate to -1%, this will force Zhang San to eat up his precious food, waste it, and not turn it into capital. This process shows that the negative interest rate policy not only failed to promote capital formation, but directly destroyed capital itself. This problem has led to the fact that the development of the entire country's economy cannot have stamina, because real savings are gone. If this problem is not clarified, it will be misunderstood that I print money and banknotes to form bank savings, and everyone regards that thing as real social savings, which is not true. There must always be commodities behind the money. If it is nothing, it is just a piece of waste paper. Money is just a receipt for these commodities. It is useless to print countless banknotes if the commodities behind it do not increase.
So we see that when a country adopts a negative interest rate policy, it will have a destructive effect on the social and economic development in the long run, because it disintegrates and destroys capital instead of creating and forming capital. So on the surface, we see that the negative interest rate policy of the European Central Bank is reasonable, but in fact, it is simply impossible after scrutiny. Because real savings are online, a society can only create more value if it has real savings, these real economic resources, when you lend these economic resources to others or form capital, which is called investment. In addition, if these real resources are used for exchange, this is called consumption. If the foundation of real savings is destroyed, there will be no resources for investment and consumption.
Therefore, we can draw the final conclusion that under the negative interest rate policy, the economy may be stimulated in a short period of time, but once it operates for a long time, it will inevitably destroy the economy. That is to say, it is impossible for the European Central Bank to implement a negative interest rate policy all the time or to implement a negative interest rate policy in stages, because they are clear about this double-edged sword.
This is Greenspan's comment after summarizing the six-year quantitative easing policy in the United States. QE, that is, the quantitative easing policy in the United States, has brought asset inflation. What does that mean? That is, stocks have risen, real estate has risen, and assets have inflated. But the industry has not received much impact. According to his words, real needs die in the water.
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