Central banks have so far kept the bankrupt financial system alive through unprecedented amounts of cheap money and direct purchase of assets from banks and zombie corporations. As the bubble behaves like a beast, the more you feed it, the hungrier it gets. Thus, according to The Economist, a discussion has started on how the ECB, for instance, could go deeper into negative interest rates, provided that those rates, applied to loans to banks (TLTRO) , are decoupled from deposit rates, keeping depositors from hoarding cash.
The Economist writes: “There is no technical floor on the TLTRO rate: It can fall to -5%, -10%, or further. Lower rates could give inflation, long subdued, the kick it needs. Meanwhile the central bank could start to raise its deposit rate, satisfying critics in Germany and elsewhere, who worry about the impact of negative rates on savers. The sliding scale for assessing who gets access to cheaper ECB funding could be altered to, say, improve the transmission of negative rates. Banks could be asked to reprice their existing loan books, suggests Eric Lonergan of M&G Investments, a fund manager; in its most daring form, perpetual TLTROS could require banks to lend at negative rates—a way of transferring cash to citizens.”
Not everybody agrees with the ECB course, however. “Andrew Bailey, the governor of the Bank of England, told Bloomberg on Aug. 6th that he did not expect to follow the ECB’s lead,” the Economist says.
