Courtesy of Mish.
Several readers disagreed with my statement that “negative interest interest rates cannot occur naturally“.
Most of the disagreements involved “safekeeping”. Let’s take a look at one such comment along with my reply.
In response to Negative Interest Rates: Can They Ever Occur Naturally? What is the “Natural Rate”? Reader Thomas commented ….
I rarely disagree, but here I am. Safekeeping is an important function. Storage costs (for silver, not so much gold or fiat) can also be important. Bitcoin would be more expensive if bitcoin safekeeping and storage weren’t problematic. If bitgold proves itself over time, it may put a floor on interest rates. GLD would, if not for rehypothecation, various frauds on commodity accounts, etc. Of course if interest rates go negative enough, people will find cheaper ways to secure their wealth.
Email Exchange With Acting Man
Pater Tenebrarum at the Acting Man blog responded to my article with this Email thought …
If the natural rate were to fall to zero or into negative territory, we would all cease to consume altogether – all our activities would become future-oriented. In other words, we’d starve to death. So it is literally impossible for the natural rate to become negative, as long as time passes for us, i.e., as long as there is a “sooner” and a “later”.
I pinged back “Some confuse negative interest rates with storage fees. There is a legitimate role of paying a safe-keeping fee. But nothing is being kept safely. And there are already checking fees, statement fees, ATM fees, etc.”
Pater pinged back “Exactly, the storage fee analogy is not applicable in this case! It would only be applicable if the bank is 100% reserved, which almost no bank is. You are quite correct that the perverse move of the other gross market rate components into negative territory is a function of the fiat money system and what it enables the authorities to do.”
Both Pater and I would welcome 100% reserves and reasonable safekeeping fees. But let’s not confuse that with negative time preference.
