Negative interest rates = The bizarro market... And it's happening right now in most of Europe. The federal government of Germany just did something nearly unheard of: It issued a 30-year bond with a negative interest rate. Here's why that's weird:
- How a 30-yr bond normally works: An investor gives $900 today, in return for $1,000 in 30 years. Investors make money by lending.
- How Germany's 30-yr bonds work right now: Investors gave Germany $1,149 today, in return for just $1,000 in 30 years. Investors pay money to lend.
The asparagus is white... and you have to pay to keep money in a bank. These are both truths about Germany right now, and it's thanks to the European Central Bank — Europe's equivalent to the Fed. It's using a negative interest rate to force you to take cash from your savings account and invest it instead. It's like opposite day for European bank accounts:
- In Germany, banks won't pay you interest — they charge you interest.
- Banks have to pay money for holding your money in an account, so they probably pass that charge on to you.
This is punishing you for not investing... European economies didn't recover from the financial crisis as well or fast as America's did. Policymakers there are still desperate to stimulate growth, which requires investment. So negative interest rates hurt people who don't invest. You're more likely to buy things or invest in stocks if the alternative is your money shrinking in a bank account.