Negative Interest Rates—Ammunition for a Losing Battle

By Dan Celia | May 3, 2016 | 11:57am EDT
President of the European Central Bank (ECB) Mario Draghi addressed the media as Europe decided to pursue negative interest rates.

Central Banks around the globe are excited about what’s happening with the European Central Bank (ECB). The announcement of negative interest rates has appeared to stimulate the economy. And in fact, many sectors of the economy are improving, such as bank and other consumer lending. Lowering the lending standards enables banks to actually escape negative interest deposits and start lending more money, which in turn, creates many hazards for lenders and for banks.

In reality, negative interest rates continue to reduce banks’ profits. The financial sector, here and around the world, is an important part of overall economic stability, but this doesn’t seem to matter. Central Banks have painted a rosy picture about negative interest rates and seem to believe this could be the ammunition they have been waiting for to stimulate the economy. Although it may be ammunition, I believe it’s only enough ammunition to “kick the can down the road” a little further. The only difference with this kick of the can is it will not just postpone the inevitable crisis, it will make it much worse.

The banks’ actions encourage more debt, particularly to those borrowers who do not deserve it. And their actions encourage corporations, as well as small and midsized companies, to borrow money to expand their operations. However, all the lending and borrowing and negative interest rates in the world will not stimulate consumers to buy the goods and services these companies produce. So why would they borrow?

But Central Banks seem to have overlooked this “minor” detail. It is only a matter of time before negative interest rates hit the shores of many Asian societies and others in the EU—and eventually here in America. After all, Central Banks around the globe are desperate for ammunition other than quantitative easing. Although they believe quantitative easing is a great tool, it has had zero impact on the underlying fundamentals of the economy. It has created, however, a psychological wealth effect that nobody is really buying, as indicated by the most recent U.S. GDP numbers.

A man walks past the Bank of Japan Friday, Jan. 29, 2016. The Bank of Japan on Friday introduced a negative interest policy for the first time, seeking to shore up a stumbling recovery in the world’s third-largest economy. (AP Photo/Koji Sasahara)

Inevitably, the only action that will stimulate the economy for the good of future generations is to let the chips fall where they may. Oh, there will be a lot of pain. There will be many bankruptcies.  And only the fittest companies will survive. But we cannot continue refinancing debt and producing more debt instruments to creatively pay off all of this mounting debt—delving into innovative lending strategies and forced lending scams to avoid negative interests rate in order to earn a little income.

We must have an economy built on strength and consumer confidence. And the only way this can happen is for Central Banks and governments to stay out of it. The government’s only responsibility should be creating an environment that is good for the country—an environment that will incentivize companies and corporate America to expand and give a sense of comfort to consumers, encouraging them to spend money and thus grow the economy.

The idea of facing a problem by doing everything we can to prop it up, thus postponing the inevitable fall, is not any way to build a strong economy. We need to create an environment where the government or a Central Bank is not propping up anything. We need to have consumers who feel good about the direction of the economy. Ultimately, we must build confidence in business owners and all consumers by relieving them of excessive regulatory burdens and reforming our unwieldy tax code.

That is the kind of change we can bank on, and change we can all live with.

Dan Celia is President and CEO of Financial Issues Stewardship Ministries, Inc., and host of the nationally syndicated radio talk program “Financial Issues,” heard daily in more than 600 radio stations across the country and in tens of millions of homes on Christian television networks. To learn more, visit

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