Now the Fed may follow the lead of the European Union, Switzerland, and Sweden and institute a policy of "negative interest rates" in order to kick start the economy. What that means to you and I, is that instead of receiving interest earned on your savings account, you would actually pay some percentage (usually 1/2 percent) as a penalty for holding on to that money. The belief is that consumers will see no advantage of keeping money in the bank, and start spending again. The rationale for this is displayed in the following two charts.
The first shows how, after years of not saving, American's savings rates are now trending higher as more and more people are putting money in the bank:
|Click on Image to Enlarge|
Because of this, the growth in retail sales has been increasingly slowing since 2011. And, since consumer activity makes up 70% of economic growth as measured by the GDP (Gross Domestic Product), this slowing in retail sales results in a slowing of the economy. In fact, the economy only grew by seven-tenths of one percent in the last quarter of 2015. With that in mind, look at this chart from Bloomberg showing the increasing slow down in retail sales:
|Click on Image to Enlarge|
In Europe, there is a "fear" that the European Union will collapse. In this country, people don't feel that the economy is strong, and what happened in 2008-2009, will happen again.
For these reasons, I believe the Federal Reserve is completely powerless in trying to stimulate the economy and in thinking that "negative interest rates" are going to do the trick. People will only become more fearful and more frustrated at seeing more of their wealth being chipped away. Those who have limited retirement resources that they thought were protected in the bank, will only see their retirement fund dwindle away.
If we want to get America going again, we need to get the federal government out of the way. For example, forcing people to buy health insurance, when they can't afford to do so, only lowers the money that would have been used to boost retail sales. Forcing companies to provide health insurance in lieu of good wage increases also reduces the consumer's spending ability.
There is no logic behind reducing people's savings in order to improve the economy. In addition, countries with negative interest rates also have considered making it illegal to withdraw cash to prevent people from stashing it away in their mattresses.
Negative 0.5% Interest Rate: Why People Are Paying to Save: http://www.nytimes.com/2016/02/13/upshot/negative-interest-rates-are-spreading-across-the-world-heres-what-you-need-to-know.html
Definition of Quantitative Easing: http://www.investopedia.com/terms/q/quantitative-easing.asp
St. Louis Federal Reserve: Personal Saving Rate: https://research.stlouisfed.org/fred2/series/PSAVERT
Retail sales declined to the lowest rate since 2009: http://www.bloomberg.com/news/articles/2016-01-15/retail-sales-in-u-s-decrease-to-end-weakest-year-since-2009