February 21, 2016
THE DIFFICULTY OF PROCESSING DEFLATION:
When interest rates go negative (The Week, February 21, 2016)
How negative interest rates might affect ordinary consumers is also largely unknown, said Neil Irwin at The New York Times. Right now, negative rates only really govern money that big institutions stash with central banks, but the effects could easily trickle down, in the form of "fees for keeping money" in ordinary savings accounts. And don't think the U.S. is immune from such a "mind-bending" turn of events. Federal Reserve Chair Janet Yellen told Congress last week that while she didn't think pushing rates below zero would be necessary, "she also didn't rule it out." The Fed has also quietly asked major U.S. banks to test what would happen to their finances if rates went negative. Economists, accustomed to treating sub-zero rates as an "intellectual curiosity," are only just beginning to imagine the "weird things" that might start happening. "For example, would people start prepaying years' worth of cable bills to avoid having money tied up in a money-losing bank account?"
Sublime! With their own example you can see how stubbornly people are clinging to the 1970s. Nevermind that in a deflationary epoch you never want to purchase ahead because the dollar you have today will buy more goods and services tomorrow--which is why negative interest rates are being tried in the first place--the two most important trends in cable television are cord-cutting (where you get rid of cable altogether in favor of cheaper services) and al la carte pricing (which will cut your bill be letting you only subscribe to the three channels you actually watch).
Posted by Orrin Judd at February 21, 2016 8:00 AM