Man Bites Dog: Negative Interest Rates

      So we have a new phenomenon of banks owing money to borrowers-banks paying borrowers?! Now that's man bites dog. So now would be the time to borrow money-assuming you have the credit to do so. 

     "Tumbling interest rates in Europe have put some banks in an inconceivable position: owing money on loans to borrowers."

      "At least one Spanish bank, Bankinter SA, the country’s seventh-largest lender by market value, has been paying some customers interest on mortgages by deducting that amount from the principal the borrower owes."

    http://www.wsj.com/articles/as-interest-benchmarks-go-negative-banks-may-have-to-pay-borrowers-1428939338

    Again, let's go borrow! Right? This is also the point that Keynesians have made with governments: why not spend now where you could actually get a positive yield on your borrowing? 

    Of course, the other side of the coin is that few of us are in a position to borrow right now-and this is specifically about the EU area post it's QE program-while we all lose money on our deposits where we pay the banks to hold onto our money. 

    So this may be a fine thing if you have a mortgage with an adjustable interest rate:

    "Just like in the U.S., the financial crisis battered both banks and borrowers so that banks didn't want to lend and consumers didn't want to borrow. That caused the economy to stall just like it did here. So it took a while, but earlier this year the European Central Bank finally launched a bond-buying program like the Federal Reserve's. The hope was to drive down interest rates and boost borrowing. But central banks across Europe started buying so many government bonds to push down rates that bonds got scarce and in some cases the rates were pushed below zero. Those government rates are often benchmarks for mortgages. So, for instance, let's say you had a variable rate mortgage in Spain. Maybe your interest rate started out at 2 percent, but now it's possible it's fallen to negative 1 percent, meaning the bank has to give you a rebate or maybe pay down a bit more of your principal each month."

      http://www.npr.org/2015/04/14/399641297/when-rates-turn-negative-banks-pay-customers-to-borrow

     However, the down side:

     "but it doesn't make bankers happy. If they're going to make money in this situation, they're going to have to charge people to take their deposits. That's not a great way to attract depositors. Instead, people might just want to stick the money under the mattress."

     So, while it would be great if the bank would pay us for our mortgages, it's not necessarily a healthy situation:

    "Well, there are risks posed by these ultralow and even negative rates. Banks have trouble making money in this kind of environment, and the health of eurozone banks is already a subject of debate, so that's not good. Another risk is that very low rates might reignite the European housing bubble, pushing real estate prices irrationally high because mortgage rates are so attractive. The third risk is that low or negative interest rates could cause underfunding of pension plans because many plans are required to invest in government bonds, some of which are now yielding negative rates. That could hurt retirees in the long run."

     My guess, is that risk number 2 of another housing bubble is probably overblown-as I observed in discussing Hillary's 2016 campaign recently, there is a tendency to always fight the last war. 

     In any case, the phenomenon of negative rates give economists what they so love and so rarely get-a natural experiment.