One of the speakers at the Rocky Mountain Economic Summit on July 12th will be David Kotok, chief investment officer of Cumberland Advisors and vice chair of the central banking series at the Global Interdependence Center. He recently commented on negative interest rates:
There seems to be a debate at the European Central Bank (ECB). The issue is whether or not the ECB should impose a negative interest rate. Negative interest rates are the ultimate in market distortions. They employ only a stick and no carrot. Their use tends to progress from disincentive through penalty to punishment.
Of course, depending on inflationary expectations, we probably have negative real interest rates in North America now and have had them for some time [if people expect the rate of inflation to be greater than the rate of interest, that means they actually expect to lose purchasing power with their investments; but losing a little is still better than losing a lot, which is what they'd do if they just held cash.].
What puzzles me is why so many people lend at negative real interest rates. Are there so few good investment opportunities offering better expected rates of return?
The glib explanation is that the marginal product of capital is expected to be very, very low (i.e. people don't think there are [m]any good investment opportunities out there).
But why is that? Is it uncertainty about the political future? Uncertainty about global stability? Or are there other explanations?
My attendance at the summit is supported by several sponsors, including the Department of Economics at The University of Regina.