Fasanara Capital writes
“First, the ‘nocebo effect’ of negative interest rates. In medicine, the nocebo effect is opposite to a ‘placebo effect’, insomuch that it depicts the phenomenon in which inert substances or mere suggestions of substances actually bring about negative effects in a patient. As a market participant, if I know that lending does not yield much, but may entail untraditional levels of risks, I do not lend. I wait and see what happens first. As a borrower, if I feel the economy is so desperate as to be in need of endless non-sensical negative rates, I do not borrow. What can be the prospects in an economy in need of dramatic measures. Having flipped completely upside down the lending and borrowing scheme, by messing around with the price of money, creates a market economy that leaves economic agents wandering and waiting on the side-lines. They go to sleep, like Snow White after biting the red apple.
In that, enduring negative rates are deflationary. Thus, in a vicious cycle, defeating the purpose for which they are introduced.”