Savers in Euro, Swiss Franc, Japanese Yen, Swedish and Danish Krona are observing their assets decreasing.
To protect the value of their assets people invest in currencies at positive rates, firstly the US dollar, in gold and in financial and real assets.
Policy makers are following the “melting” money theory, a money that reduces in value with time, to stimulate entrepreneurs to invest and people to consume instead of saving.
The first beneficiaries are nations with high debt levels as Italy and Japan. The lower borrowing costs take pressure off government finances. Italian and Spanish 10-year bonds, for example, are trading at yields around 1.25 percent, compared with more than 7 percent in 2012.
The reason for very low negative rates in Switzerland is different: the central bank is trying everything to cap the Swiss franc possible appreciation.
An alternative to negative rates, alias monetary expansion, would have been fiscal policy via lower taxation. This would have stimulated the economy too but many Countries are already in high debt and deficit.
Back in July 2012, the Danish central bank lowered the deposit rates into negative territory.
The European Central Bank became the first major monetary institution to venture below zero in 2014.
In 2015, also Sweden and Switzerland brought rates into negative territory.
The Bank of Japan adopted it in early 2016.
Even if these policies are in place since a while, real economy is still not observing a full recovery. It is true that central bankers can claim that without them the situation would have been worst.
In case of positive scenario, after some years of negative rates the mature economies of Europe and Japan can recover and start to growth again.
However, in a global market economy, we are worried that negative rates and the “melting” money principle to be effective need to be applied everywhere.
In a global world, the mature economies after experiencing the relocation of jobs are at risk of observing also the “relocation of capital”.
The last defense are the reduction of globalization and introduction of tariffs to protect their economies. The first signals are already here: the Brexit vote and the increased popularity of Trump economic proposal.
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