If you think your bank savings earn a measly return now, just wait: It could get even worse.
A coordinated campaign to make negative interest rates a reality in America just got launched -- at least, it looks that way. (See other stories in the Below Zero series for a thorough explanation of negative interest rates and the implications.)
Such timing makes strategic sense because most interested parties are looking in the other direction.
Wall Street is now nervously watching for clues about when the Federal Reserve will next raise the cost of borrowing. Traders don't seem the slightest bit concerned about when rates will be slashed, particularly not the prospect of going below zero.
But you, perhaps, should be wary, because the the actors involved are making their moves now.
Here's what has happened and why the stage is being set for a future when your bank balance could perpetually dwindle, even if you never withdraw a dime. With negative interest rates, depositors must pay interest on their accounts rather than earning it. A $100 bank balance, for example, might shrink by $1 over one year instead of growing that much.
The Jackson Hole Approach
Last month at the Fed's Jackson Hole retreat, Carnegie Mellon economics professor Marvin Goodfriend made the case that negative rates should be a policy tool available to central banks. One plank of the argument is that negative interest rates would be far more effective than quantitative easing, sometimes referred to as money printing.
The basic theory is that a slowly dwindling bank account caused by rates of less than zero percent would act as an incentive for people to spend rather than save, thus spurring economic growth.
I've argued the opposite, and that going below zero is simply more of the same policies we've seen over many years, ones that have left us stuck in a period of sluggish growth. Furthermore, the policy would have a particularly adverse effect on the profitability of banks such as JPMorgan Chase (JPM) .
