Some banks (of develop countries) offer Negative interest rate to it’s borrower. So you can say that, bank will give you interest when you take loan from them. Some country issue negative bond. Suppose you buy negative bond of worth $1 Million, then you has to pay interest on that & the maturity amount will be less than principal amount. I was really shock after hearing this entire staff. I would like to give my inputs on all this including financial crises (obviously it’s my view, only the policymaker should aware of their real motto).
How anybody get job in an economy?
When someone buy a product or take a service, the profit of service provider or the manufacturing firm increase. When the business of that service provider or the manufacturing firm increase or when business expands then he/she will hire new employees. So we can say that, when we buy something someone get job opportunity.Banking system
In develop economy; the interest rate is very low. So rather than saving the money, people like to spend. When you buy something the profit of that company increase & also it help to create jobs in market.
Because of low interest rate, borrower gets loan at cheaper rate. So businessman can take loan at low cost, which also result in job creation in market (as the company expands, it recruit more people).
Bank offer very low interest rate so rather than saving money, people spend more which result in job opportunity and those new recruits also spend more which result in more job creation. So this circle rotate round & round which generate hugh job opportunity till globalization.
Talking about current scenario in develop country. Due to low interest rate, citizens have less money with them (compared to citizens of developing country). Government & corporate borrow more money from banks. That’s the reason why the central bank (of respective develop country) can’t raise the interest rate. If some borrower don’t even paying their principal amount, then they might be waiting for next financial crises so that they can get bailout.
Due to low interest rate, 99.99% citizens have very less money (some people are totally dependent on government). If we want to increase financial condition of 99.99% citizens, then the banks should increase the interest rate to motivate people for saving money.
I think, banks are in trap, in one side there are 99.99% citizens & on the other side 0.01% (and the real problem is most of the citizens are unaware of this fact). In either way there will be a financial crises and the only thing which delay this crises is tools like QE, central banks buy shares of company, negative interest rate etc.
If we talk about only America, till every country buy crude oil in dollar, there will be no financial crises in America except if someone purposely done for his/her long term goal. And if America goes in financial crises, half of the world will follow them.
Moving on to negative bond.
Some country issue negative bond. I didn’t get their logic. They are predicting that, there will be deflection after 30 or 40 years? As per economics, if the supply of any product increase, then the price of that product decrease. So the supply (of all goods & services) is going to increase or demand is going to fall? or both? Falling of demand means reduction in population.
Why central bank will buy shares of any company?
Suppose your parents give you $1 Million to spend, with condition that, you have to spend this money in a month & at the month end you has to return remaining amount. Again in next month your parents will give you new $1 Million which you has to spend in a month. In this case what will you do? Many of us will spend all money, rather than giving it back isn’t it?
If central banks are aware of financial crises, then they will buy shares of company or debt of company. Central bank can become the main partner of all big multinational company. In any way, central banks print money, so they can take control of all company (obviously this is my thought, I can’t predict what is happening in close door). No matter you have gold or bitcoin, you can’t eat that. Who is the richest person? One who has more money or who generate money?
I will come with lot more interesting topics like this. Till then, keep updating your knowledge. B’coz your knowledge (& use of that knowledge in right direction) is your biggest asset.