Consumer Debt with Negative Rates is “a Perversion.”
By Wolf Richter and cross-posted from WOLF STREET
I’m not sure what, if anything, Ewald Nowotny, Member of the ECB Governing Council and Governor of the Austrian National Bank, and I agree on in terms of monetary policy. But today he said something that is exceptionally truthful – and a glaring expression of just how hypocritical a central bank and the people that run it are.
Nowotny’s keynote speech today at the European Forum Alpbach in Switzerland was titled (my translation from German), “Low Interest-Rate Policies: Free Money for All, or Savior in an Emergency.”
A rhetorical question which he then proceeded to answer with utmost clarity: Free money, or worse, money with negative interest, is not for everyone. Only governments and corporations are allowed to benefit from it, but not consumers.
In fact, consumer loans with negative interest rates would be “a perversion,”he said to all those waiting eagerly for their negative interest mortgages where they would actually be paid every month for having borrowed a ton of money to buy a ludicrously overpriced house. Even Switzerland, which has the deepest negative rates in the world, has drawn a line.
“I believe it would be a perversion, an economic one, for loan rates to suddenly be negative. It totally goes against the economic nature of a loan,” he said.
And I totally agree. Negative interest rates, or negative yields, go “against the economic nature” of debt. Negative yielding debt is an absurdity that exists only because central banks have created it and forced it upon their bailiwicks…