Deutsche Bank Discovers Kuroda’s NIRP Paradox

• Deutsche Bank Discovers Kuroda’s NIRP Paradox
  by Tyler Durden, www.zerohedge.com  
  Last October, BofA looked at Europe’s €2.6 trillion in negative-yielding debt and discovered something “stunning”: Savings rates were going up not down. Don’t believe us, just have a look at these three charts: (top of post)
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  But how could that be? By all accounts – or, should we say, by all conventional Keynesian/ textbook accounts – negative rates should force people out of savings and into higher yielding vehicles or else into goods and services which “rational” actors will assume they should buy now before they get more expensive in the future as inflation rises or at least before the money they’re sitting on now yields less than it currently is.
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  Well inflation never rose for a variety of reasons (not the least of which was that QE and ZIRP actually contributed to the global disinflationary impulse) and nothing will incentivize savers to keep their money in the bank like the expectation of deflation.
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  Well, almost nothing. There’s also this (again, from BofA): “Ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain.”
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  Essentially, the bank argues that NIRP may be the shocker that wakes the public up to the fact that if negative rates exert a negative (no pun intended) effect on long-term household balance sheets, they will stop spending. To wit:
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  Even if inter-temporal consumption substitution occurs from now on, if the introduction of negative interest rates reminds households of a slower pace of their future accumulation of financial assets, namely suggesting a worsening of lifetime household budget constraints, households would be forced to cut back on consumption in both the current and next periods.
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  So there it is again. More evidence that Europe’s (and soon to be Japan’s) adventures in NIRP are destined to fail. Surprise, surprise.
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  read more.

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