Negative Interest Rates -- a growing hydra:
The first case of negative interest rates appeared in Japan in 1998. One has not to consider for a long time that the Japanese economy did not experience a great benefit from this development. Their economy 17 years after the fact is as moribund as ever despite negative interest rates and a series of other forms of stimulus initiatives.
More recently negative interest rates have shown up in Europe -- six countries and counting. These lucky banking utopias of the Eurozone are: German, Switzerland, the Netherlands, Denmark, Finland and France. Primarily, some countries are using negative rates as a desperate measure for jumpstarting their economies. Another less healthy reason is to keep hot money flows out of their domestic financial markets so they do not become destabilized. The most extreme cases are Denmark and Switzerland that have a rate of -.75%. For the average citizen it now literally pays to keep their money at home in the mattress. There is even something called negative mortgage rates -- not only is a mortgage interest free, but the mortgagee doesn't pay back all the principle. Real estate in Denmark has gone through the roof in recent years. Surely, this must be a good thing.
So the fundamental question is, are the use of negative interest rates by central banks a good idea or are they just another red herring that the central banks are actually doing something to boost economic activity. Worse, this measure might be doing more harm than good, especially in the long run.
First and foremost, savers are being punished -- those cheapskates that don't go out and blow their paycheck and like to live a frugal lifestyle. It's horrid to think that people will still actually save in order to make a major purchase or put some money aside for a rainy day. Soon they will talking about conservation and saving the planet. This is anathema to the consumerist economy. The other less advertised damage is in capital formation for long term investment. Once upon a time, banks, acting as intermediaries for their depositors, used to fulfill this roll but no more. Banks have become very risk averse and are not in the business of lending to business, especially new ones. Investors in search of higher yields must now take the risk directly and of course don't have a clue what they are getting into.
The banks may also have a good excuse to cut back on lending to business as their reserve ratios are whittled away from depositors emptying out their accounts and simply putting their money in some other safe place that doesn't charge them to keep their money. In effect banks have become redundant. The only service to entice depositors are debit cards, but the phone companies might take over that roll with payment via cell phone.
If negative interest rates lasted only a few weeks, none of this would be a problem. If they last a few years, then that is a very different story. Expectations become self-reinforcing, and a 'unrecognized' bubble starts to form. When it pops, it's the small investors who suffer, and money available for long-term capital investment shrinks even more. Of course having available capital for long term investment is what is used for R&D for the next breakthrough that actually enhances our standard of living, like the washing machine.
Some interesting charts:
A street-level look: