What are Negative Interest Rates and How Do They Work? Negative Interest Rates Explained.

How Negative Interest Rates Work, and What They Would Mean for the Economy. Negative Interest Rates Explained.
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What are Negative Interest Rates and How Do They Work?
Welcome back to Patrick Boyle on Finance. In today’s video we are going to learn about Negative Interest Rates which have been all over the news recently. U.S. President Donald Trump has suggested the Federal Reserve should bring interest rates below zero... but what does that even mean? Will you be paid for taking out a loan? We'll answer these questions and more.

Today we will discuss how negative interest rates work, where have they been implemented, how they would affect savers and borrowers, what are the side effects of negative rates, and if you stay tuned to the end I will tell you the six ways University of Chicago Finance Professor John Cochrane to effectively earn an interest rate of zero even if paper currency, along with money in the bank is earning a negative interest rate.

Countries around the world are taking all sorts of extreme measures to keep their economies afloat during the coronavirus pandemic. I put up a video a few weeks ago on which country is spending the most in terms of GDP in these efforts.

The US Federal Reserve has already cut the federal funds rate twice in 2020, and there's debate amongst some, about whether the agency should lower rates again.

Right now, the US federal funds target rate is 0% to 0.25%. If the Fed lowered rates again to help the US economy, rates would drop below zero.
Negative interest rates are controversial, but countries such as Sweden, Switzerland, Denmark and Japan have already implemented this approach. What are Negative Interest Rates and How Do They Work?

Albert Einstein once called compound interest the eighth wonder of the world, adding, “He who understands it, earns it... he who doesn’t... pays it.” But at negative interest rates money saved today would instead be worth less every day going forward.

To better understand negative interest rates, it’s helpful to start by looking at the historical background. During the global financial crisis of 2007–2009, central banks decided to lower interest rates as close to zero as possible. Economies around the world began to recover but at only at a slow pace so the central banks chose to keep rates low, in the hope that individuals and businesses would be encouraged to borrow more, increase spending, stimulate economic activity, and create jobs.

At zero percent, borrowing and spending remained sluggish, and nations were worried about deflation. So central banks introduced an arsenal of unconventional monetary policy measures in order to stimulate real growth and prevent deflation. They included central bank purchases of increasingly risky assets, forward guidance, and negative interest rates.

Negative Interest Rates Explained.

Видео What are Negative Interest Rates and How Do They Work? Negative Interest Rates Explained. канала Patrick Boyle