15. Overseeing the Ultimate Impact on the Principles of Real Growth

There is a belief that the negative interest rates only concern banks, which perceive their deposits with the ECB not rewarded, but commissioned up to an annual interest rate that is still under zero percent. In reality, there is not a single entity that could borrow from their bank at rates below zero.

Repaying less than the totality of the borrowed capital is not allowed at any point in financial system and when one borrows 100, one has to pay 100, plus interest, which is the reason why even loans with a reference rate beneath zero do not get their charges descend.

However, there is another perception of this issue where as a substitute of seeing interest rates decrease as an instrument that a growing number of central banks uses in order to recuperate the temporary global demand, they consider zero rates, and especially the postponement of the negative interest rate area is not only the symptom, but also the symbol of a growth at the level of the world economy of enormous financial and monetary disproportions of unparalleled strength. The imbalances that are basically a direct consequence of the regulatory strategy choices completed after the economic crisis by the major central banks, initiated by the Fed.

This perception of zero rates comprises the belief that they are not a tool that would appear in the files of the central bankers, but an apprehension sign that indicates that the circumstances, both in developed and in emerging countries, are now attaining an alarming edge that is even now sincerer than right before the last financial crash. This viewpoint is followed by an unbending disapproval, even though it was articulated in very cautious standings of the outlines of studies, as well as in contemporary responses of central banks to current issues. The key problem is not whether these reproductions are theoretically acceptable or not, but that they have fundamentally been calculated before the factual expansion of the globalization, so their position of accounting therefore remains principally that of state economies, while the actual financial and monetary subjects, even of comparatively not large sized, are nowadays occupied in a day-to-day situation of intercessions without limitations.

Fundamentally, they are not considered to entirely assimilate and account for how international refinancing streams are now taking a key position in the broadcast of financial compulsions, particularly those produced by the decisions of the most important central banks in the world, as it is the case with the spread of the bubble economy to emerging countries through the quantitative easing strategy and the extremely threatening counterattack that generates its closure. In fact, they represent primarily temporary reproductions that disregard the central position of what was perceived as standard. More precisely, they lead to not seeing their ultimate impact on the principles of real growth. In that case a continued practice of zero rate policy lead to a progression of misrepresenting inducements that reduce productivity increase.

From this standpoint, each and every rise in the US inflation rate over the past several years is only a minor feature in comparison to the real intimidation that includes the detonation of global debt, the simplification of policies, the extension of the increase leverage rates, as well as the strengthening of the currency war powered by the development of quantitative easing procedures. There is a common explanation of this situation that refers to the typical connection giving to which rates drop or rise in action, bearing in mind an increase in inflation that gives rise to an opposite system with the persistence to accept as true that it is the decrease in particular rate, which will allow inflation to rise, actually leads to the lowest level of inflation rate with conjunction in the direction of a deflationary negative balance that the central bank wants to evade anyway.

This type of clarification would be connected to the intensification of the scarcity of securities, which appears as a automatic consequence of the crisis, but also because of quantitative easing policy, and that would have the consequence that the actual interest rate of money with fixed yields, which means the one subtracted from the nominal rate of the bond after withdrawing the inflation rate, now includes a liquidity, whose outcome, for a given nominal rate goal, is to diverge the interest rate, while at the same time the inflation rate moves in the opposite way from this premium change of the value.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018


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