Dear Reader,
A Danish bank is offering borrowers negative interest rates. That means the bank is literally paying debtors to borrow money. This sure sounds like a win for those going into debt, but there’s a reason why no one should wish negative interest rates on the United States’ already volatile economy.
When an interest rate is negative, a borrower still must make monthly payments toward their principal, but they ultimately pay back less than they originally borrowed. The borrower must still pay all the other costs and fees too. But the problem comes with saving. Setting aside some money or saving for a down payment would become a huge problem.
If one is concerned about an economic recession, it makes sense to have a little bit of an emergency fund to get through rough times, because this debt-based system still runs off the dollar. But if the interest rates are negative, you will be paying the banks to hold your money. Doesn’t that sound fun? That’s just one more reason why gold is a great alternative and insurance policy, but that’s a topic for a different day.
The housing bubble would also get much worse if the Federal Reserve decided to send the rates to below zero. Negative rates in Denmark have caused the prices of homes to soar as people believe they can afford a larger house with a bigger payment since the rates are negative. When that bubble crashes and people stop repaying their loans at all, interest rates will cease to matter. Homes will be lost, and people will suffer major dings to their credit scores making future buying difficult, if not impossible.
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Negative interest rates would not be for everyone to benefit from either. Only those with top notch credit scores will be getting loans, excluding the higher and moderate risk borrowers. So basically, those who don’t qualify for the negative rates would still get no reprieve from the interest paid on a mortgage while they get to pay the bank for the privilege of holding onto their money. None of that sounds great, and it would be a terrible economic policy that could very well burst the bubble the Federal Reserve is desperately trying to keep inflated.
But at the very least, the silver lining is analysts say that this scenario is unlikely in the U.S.
“I don’t expect any negative in rates in the US any time soon, but even if or when we do…it will probably take a few years before we see the possibility of negative mortgage rates,” said Danielle Hale, chief economist at Realtor.com.
Your best bet is to make sure you have at least some crypto currency or gold. Either one will give you something if the dollar loses all value and the banks start charging you to save money.
You should also buckle up. It’s going to get interesting in the coming years!
Best Regards,
FutureMoneyTrends.com
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