An interesting dilemma has presented itself to the world's bankers. For years they have been misguided in believing that forcing money through the system is the only way to keep economies running. Ignoring the nature of economic cycles, and trying to centrally manipulate positive outcomes, typically called 'soft landings', has led to a number of unintended consequences.
A slowing economy is one which needs savings, because in a heated economy, too many people are spending. At some point, the investment cycle can only be completed by having more people save.
We are, and have been for some time, at this stage. But the Federal Reserve (and other central banks) have all tried to manipulate consumption and spur borrowing by lowering interest rates. At some point, we've borrowed too much. At what point is that? At the point where we begin to charge for the 'privilege' of saving money. This is a Keynesian solution to a problem, but a problem that is misunderstood. During the Depression, rates were raised. This was the correct approach to handling the issue. But they were raised too far. Keynes did not deal with the issue of scale, just the issue he felt was problematic, which was a lack of consumption. Lack of Consumption is a very real problem, but lack of savings is an even worse problem.
The truth is, with interest rates as close to zero as they can be, and bank fees reaching levels that rival extortion, the US has been in a Negative Interest Rate situation for almost 3 years. We just haven't made it official the way Denmark has. It's not a good thing, either (though Denmark claims it is).
Interest rates have been negative once before - for reserves by banks at the central bank in Sweden in 2009. Even the US is considering this approach to get banks to lend more.
At some point, the massive credit expansion the Fed has employed the last 4 years will create inflation. We've been lucky so far, as a reserve currency, that most of this inflation has been exported to smaller nations. But that time is coming to an end, as is our reserve status. This, combined with negative interest rates, will no doubt spark the inflationary fires as consumption takes place and dollars are repatriated when interest rates go up.
It's worth noting, as well, that the US has been in a Negative Real Interest Rate situation for quite some time (inflation is greater than interest rate payments = negative real interest rates). Negative Real Interest is not rare, and is usually what leads to increased consumption (and has no doubt kept our economy struggling along rather than forcing us to do what we need to do). Which explains why Jim Rogers has been deeply invested in commodities.
