When interest rates are high, people borrow less and save more. When they’re low, savings go down and borrowing goes up. But what happens when rates stay negative?
In Denmark, where rates have been below zero longer than anywhere else on the planet, the private sector is saving more than it did when rates were positive (before 2012). Private investment is down and the economy is in a “low-growth crisis,” to quote Handelsbanken. The latest inflation data show prices have stagnated.
Denmark uses negative rates to defend the krone’s peg to the euro.
As the Danes head even further down their negative-rate tunnel, the experiences of the Scandinavian economy may provide a glimpse of what lies ahead for other countries choosing the lesser known side of zero.
Denmark has about $600 billion in pension and investment savings. The people who help oversee those funds say the logic…