Negative Consequences Of Negative Interest Rates Are Unimaginable.

With interest rates dropping to a record low level, corporate investment has not reached the level expected by the central bank, which has puzzled many market participants.

The central bank's fascination with "effective demand" and "pmission channels" has reduced interest rates to the unbelievable level at present.

Following Switzerland, Sweden, Denmark and the European Central Bank, Japan, the world's third largest economy, also lowered interest rates below zero in February this year to prevent economic stagnation and deflation.

Negative interest rate is a complex topic, and many different factors are at work.

One important factor is that the low interest rate policy, which is used to stimulate investment, has failed and has to rely on lower interest rates to push the economy to continue to grow.

But investment saturation is the reason why the low interest rate policy is out of order.

There is a saying in the commodity market that the best way to deal with high prices is higher.

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If this is true, the reason for lower interest rates is almost certainly low interest rates.

Even so, at a more basic level, perhaps a simple logic can be used to sort out at least part of the answer to this puzzle.

Natural interest rate refers to the level of interest that assumes that all prices are sufficiently flexible so that aggregate demand and total supply are always equal.

The concept assumes that all kinds of prices can be adjusted instantaneously, reflecting the relationship between supply and demand. The so-called natural interest rate refers to the real interest rate set up under this assumption.

In this hypothetical economy, effective resource allocation is achieved because of the consistent supply and demand of commodities.

In this way, the natural interest rate can be said to be the real interest rate required to achieve the desired allocation of resources.

Since

In essence, it is impossible to observe, so the market interest rate is used. It is an inevitable substitute for natural interest rate, and the less the demand for perjury, the better.

Theoretically, positive interest rates reflect the most fundamental truth: for potential consumers, products that are suitable for us today are more valuable than the same products that we can only get tomorrow.

Moreover, because the means of production can not be eaten in the existing form, can not be worn and unlivable, their value can only be reflected in the quality of the consumer goods they produce.

Therefore, by using the current interest rate between the existing consumer goods and the previously produced consumer goods (natural interest rate), the goods on the day of production will be discounted for future use.

In doing so, our internal rate of return (IRR) is positive.

Therefore,

Minimize barriers to entrepreneurs.

In practice, he will habitually hope to surpass this interest rate so as to earn additional surpluses.

These surpluses constitute their real economic profits, not their financial profits.

At the same time, these surpluses also compensate for the risks they must take and the uncertainty they have taken along the way.

However, the negative interest rate is just the opposite of what is said above, which implies that the value of future products is higher than the value of products currently produced.

This means that the product mix produced today is higher than the cash value shared by the future plus product and service processes.

If so, why should any rational company boss invest a lot of new investment? The internal rate of return (IRR) of these new expenditures is negative from the point of view of cash. Instead of this, it is better to get drunk now than ever, and it is more cost-effective to repurchase the stock bonus by hand.

Once this happens, the whole society will fall into a vicious circle.

This will be unexpected for policymakers.