Many object to negative interest rate policy on many grounds. Let's talk about a few in song. It is good to worry about the "unbanked" who don't have bank accounts. But when cash depreciates in an e-money system, they effectively get the T-bill rate like everyone else. And having negative rates in the toolkit would bring down the inflation target, giving the unbanked a better real rate of return on their cash. Many worry about the banks themselves, but if warranted the Fed can go easy on them by exempting reserves from negative rates and only having negative rates in the overnight reverse repo facility. With a generous cap on reserves, the banks won't hurt much financially. Some say negative rates wouldn't be enough to cure a deep recession. But the real rate can go down, down, down, down, down. And if the scariness of negative rates reduces aggregate demand, this reduction in aggregate demand can be overwhelmed by a big enough reduction in the real rate. Some say lower rates will cause financial instability. But deeply negative rates for a short time will have no more affect on asset prices than zero rates for a long time. And the mainstay of financial stability is requiring banks to get a substantial percentage of their funds from stockholders who—as stockholders—are signing up to take the hit if asset prices go down after going up. The principle of monetary policy dominance means that, regardless of where a deficiency in aggregate demand came from, negative rates—if necessary, deep negative rates—can be the cure. With a robust negative rate policy, aggregate demand is no longer scarce. Lower bounds on rates are created by misbegotten government policy. No one but the government has the resources and the distance from a profit motive to offer a zero rate when other going rates are deeply negative. And some say we should put the economy through hell in order to make people willing to do a preferred policy outside the monetary policy realm. But this is not only cruel, it ignores the fact that governments who do one thing well are trusted to try other things. Will a robust negative interest rate policy ever happen? No one knows the future, but crises happen, and those in charge look for anything that might help. The hope is that when the next big lower-bound crisis happens, the intellectual framework for a robust negative rate policy will have been laid.
