In 1946, an American singer, Merle Travis, recorded a song called “Sixteen Tons.” The song told the story of a poor coal miner in Kentucky, who lived in a small coal mining town. The town’s economy revolved entirely around the mine.
The mining company owned a “company store,” which had a monopoly on the sale of provisions. It charged rates that were designed to use up the weekly paycheque of the miner, so that the miner, in effect, was a slave to the mining company. As the song states,
You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don’t you call me ’cause I can’t go
I owe my soul to the company store
Negative Interest Rates
Let’s put the song aside for the moment and have a look at a concept that has been bandied about by the European Central Bank (ECB) for a while now. Since the collapse of the central banks would doom the world (their claim, not mine), it is essential that the banks be saved no matter what else must be sacrificed. Efforts to “save” the situation have been implemented through quantitative easing (QE) and the setting and continuation of low interest rates.
Unfortunately, in spite of record profits by banks and staggering bonuses handed out to senior bank executives, somehow the QE and low interest rates have not created the prosperity desired. The economy is still in the tank. What to do?
A solution being considered is to create “negative interest rates.” Sounds logical, doesn’t it? If low interest rates have kept the economy from crashing but haven’t fixed it, surely, negative interest rates can only be more positive.
And what are negative interest rates? Well, it simply means that, if you keep your money in a bank, instead of the bank paying you interest, you pay the bank to hold your money.
No central bank has ever done such a thing, so, not surprisingly, it sounds like a bitter pill to swallow. However, the ECB will present it as an “unfortunate necessity.”
