What affect would negative interest rates in the U.S. have on investors?

As published in “Financial Focus – Down The Rabbit Hole” in the summer 2016 issue of Pittsburgh Quarterly magazine.

What affect would negative interest rates in the U.S. have on investors?

Potential Impact of Negative Interest Rates

An often-misattributed quote is, “compound interest is the greatest invention of mankind.” Whoever deserves credit for the quote would turn in their grave at the idea of negative interest rates. The consequences of negative interest rates cannot be fully known, but they would certainly pervert the natural order of investing. Savings would be punished and borrowing (debt) would be rewarded.

Negative interest rates would certainly help governments that have a great deal of debt, making it cheaper to finance their deficits. The thought is, negative rates would also spur the consumer to spend instead of save. I believe that individuals will still want to save. Negative rates will just force them to do it outside of the traditional banking system. My hope is that we do not experiment with a negative interest rate policy.

Mike Kauffelt
Chief Investment Officer
Bill Few Associates, Inc.

 

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