Posted by: Dirk | May 26, 2009

Negative interest rates

Recently, Willem Buiter has proposed negative nominal interest rates. He wonders why this topic generates almost as much heat and emotion as a critical piece on Obama. Let me quote from his own text:

How would people living off their savings manage with negative nominal interest rates?  First check what real interest rates are.  If deflation were strong enough, savers could still be making out like bandits, even with negative nominal rates.  If real rates are negative, you live by consuming your capital.  If that means poverty for some and creates social problems, go to the Treasury or the Ministry of Social Affairs.  Don’t bother the central bank.

Now that is exactly why people are concerned.

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