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Negative Interest Rates Threatened For Britain

The BBC reports that negative interest rates could come to the Mother Country:

Negative interest rates idea floated by Bank's Paul Tucker

Paul Tucker told MPs he had suggested negative interest rates in an attempt to boost the economy.

Bank of England deputy governor Paul Tucker has said negative interest rates should be considered.

A negative interest rate would mean the central bank charges banks to hold their money and could encourage them to lend out more of their funds.

Speaking to MPs on the Treasury Committee, Mr Tucker said: "This would be an extraordinary thing to do...

Negative interest rates have a certain logic. It costs money to create a banking system and to insure deposits. Storing anything from furniture to art to gold costs money. We are all free to store our money at home or in an uninsured institution. We can also spend it or invest it in a public or private business. No one has to accept the Bank of England's offer of a negative interest rate, which again is a storage fee, if they can do better elsewhere.

So, just as prolonged zero interest rates from the Fed were unthinkable but have occurred, the authorities have "tools", as they call it, to bring interest rates even lower. What would the rate on the 5-10 year part of the curve become if short-term rates went negative?

Just as interest rates went to unthinkable levels in the Volcker era, they at least theoretically could continue to descend to even more unthinkable levels in the world of tomorrow.