No Negatives

no negativeThere are many problems with negative interest rates. First, small and medium-sized firms can’t borrow by issuing bonds; they borrow from banks and bank rates are much higher. Second, negative rates hurt bank balance sheets, hurting credit availability. Cheap money encourages investment in capital equipment, reducing labor demand. Retirees living on interest payments get squeezed, reducing demand, and the search for yield by investors exposes the economy to increased financial instability.

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