The European Central Bank caused an outcry in June 2014 when it ventured into uncharted waters to stimulate lending in Europe: For the first time in history, interest rates on deposit accounts slipped into negative territory.
The head of the Bank for International Settlements, Jaime Caruana, warned that the consequences were “anything but clear.”
After all, the entire architecture of the financial market is based on the fact that savers are rewarded and borrowers pay a fee for the privilege of borrowing.
But this basic principle of capitalism no longer applies.
Eight months later, it is becoming apparent that the ECB’s ultra-lax monetary policy has created a negative-interest economy. Yields have entered the negative zone in one investment class after another.
The total yield on €2 trillion ($2.26 trillion) in outstanding European sovereign debt is now in negative territory.