We've all heard about negative interest rates, but we may not really understand them-- either conceptually or in terms of bond markets. Here to explain is our returning guest Dr. Patrick Barron, a longtime professor in the graduate school of banking at the University of Wisconsin.
How and why would interest rates ever be negative, when everyone prefers current consumption to future consumption? Can the "natural" or market rate of interest ever be negative? What going on in Europe that would make negative-rate government and corporate bonds attractive to investors? Will the ECB be forced to raise rates back into positive territory if Janet Yellen continues to raise the Fed Funds Rate here in the US? And will Congress resist steady rate hikes that could radically spike its annual budget outlay for debt service?
Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
Patrick Barron is a private consultant to the banking industry. He has taught an introductory course in Austrian economics for several years at the University of Iowa. He has also taught at the Graduate School of Banking at the University of Wisconsin for over twenty-five years, and has delivered many presentations at the European Parliament.