Raining on our Inflationary Parade

This is a two-part blog of excellent economic adventures, because I have no sense of short, straight-to-the-point writing.

__________________________________________________________________________

PART ONE: THE STORM
__________________________________________________________________________

I don't know if you've been keeping up with our global economy, but if you have, you'd know that it is craptastic. Is there even such a word? Well I'd like to imagine that if a person is doing so badly a job at something that instead of saying fantastic, the freudian slip would instead be craptastic because -wow- some countries's economies right now are just so craptastic.

Why do we care about what other countries are doing? Well unfortunately, apparently, we're in a global market so we can't exactly put up a wall and ignore their existence (yea I'm talking about you Donald Trump) so their well-being kind of affects us. It's sort of like that one sick kid in your classroom. As much as you'd like to just pretend that they're totally not raining on the happy parade school brings to everyone's day, viruses spread through the air and affect your health too, so I guess you give that kid medicine or something? Or maybe just not rub it in their face about how healthy you are, which apparently the U.S. has to do now since we have a few sickly, malnourished kiddos in our global classroom.

Wow, you can almost see the viruses of bad economic decisions.

So Japan's economy isn't really making the world look very good right now. They've gone and done the unthinkable, passing policies that had people dropping their porcelain cups of coffee and dramatically fainting with arms thrown back like in those old-timey movies. If you didn't know, Japan has decided to pass a policy on these fantastic, risky things called *gasp* negative interest rates. Ah, what? Wait did I read that right, negative interest rates? Is that... possible? Like, how does that work? Question mark???

Okay, it's a little weird. Countries typically don't play around with negative interest rates, because they can get kind of complicated. In general, if a country enforces a negative interest rates policy, they are essentially encouraging banks to help pump more money back into the economy.

Now, now. You can't bring that money here. Go out and buy yourself a nice, new suit.

A country's federal bank will penalize the smaller banks if they withhold too much money in their reserves. This method helps promote spending by the consumers to help kickstart the economy. Okay yea, I mean that makes sense, what's wrong with that? It helps speed up the circular flow, so why would this cause issues? Don't worry, I didn't really see the problem at first, but after watching heck tons of business news shows and reading all of the articles, ever, you'll see why this can be sort of problematic. Truly desperate times call for truly desperate measures.

Let's make some inferences on why negative interests rates are not the best. So, you're one of the commercial banks, and the Fed just said that you can't hold too much of the consumers's deposits in your reserves, because they need consumers to start spending more. Alright, but uhhh, you're a bank, and one of the things you really need to depend on is people saving their money in your bank while also borrowing money. But how are many people gonna borrow money if you don't have a lot in the reserves? Alright, well if the fed's gonna make you feel the pain, you do the most logical thing: make the consumers feel the pain by raising the rates you charge to save their money. Makes sense right? Well, you see people don't like that. These hypothetical consumers then decide to deny the need for a bank account and withdraw all of their money from the bank and keep it in a safe at home, because why should I pay a company so much to hold my money when I can do it for free at home? Okay yea one person, not so bad, that is until it's a lot of people. And now it's a lot of people per bank. And there's lots of banks in your country. Welp. That went really well. You see, negative interests may seem great in theory, but they really can turn bad really quickly under various circumstances. That hypothetical situation I just discussed? Not only is it putting millions of consumers in risk by not having their money protected, but it also harshly damages the financial district of our economy, which is also pretty important to help the circular flow. Pretty complicated huh? Now do you see why we can't exactly ignore Japan's sudden onset of negative-interest-rateitis, because yes I am a doctor, and I am so qualified to diagnose sickly countries.

How does this all tie in to the good 'ole stars and stripes? Tune in next time to find out the exciting conclusion to this two-part series of self-doubt and worry!