It’s more correct to say that central banks are terrified of deflation more than to say they want inflation.

Government Spending 

and Negative Interest Rates

by Dickson Buchanan 

In June, the European Central Bank (ECB) made a historic and downright diabolical announcement. They decided to inaugurate negative interest rates for overnight deposits. Here are the details from the official transcript:

The rate on the deposit facility was lowered by 10 basis points to -0.10 percent. These changes will come into effect on 11 June 2014. The negative rate will also apply to reserve holdings in excess of the minimum reserve requirements and certain other deposits held with the Eurosystem.

Now, the forceful suppression of interest rates by central banks is by no means a new policy. The last century is replete with examples of the abuse of this power and its corresponding consequences. ZIRP (Zero Interest Rate Policy) is inherently inflationary, punishes savers by taking away any yield on money thus forcing them into increasingly risky speculation in order to gain a return. Nor can we forget its central role in engendering the dreaded boom-bust business cycle. For the last five years the US and the Eurozone have been frolicking in ZIRP land. Last week’s decision by the ECB to cross the border into negative territory marks a historic event and shows just how far central banks are willing to go to destroy the global economy.

Why negative interest rates? This is really the same as asking “why zero interest rates?”

The scripted answer from Mario Draghi (and Janet Yellen for that matter) is, “... the measures will contribute to a return of inflation rates to levels closer to 2 percent.”

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Read more:mises.org