How negative can interest-rates go?

A consequence of the credit crunch era that has continued to flow is the trend towards negative interest-rates and yields. For example it was only the week before last I was looking at a speech from Bank of England Governor Carney that referred to there being some US $13 Trillion of negative yielding bonds. Then last week I noticed that some developments are somewhat mindboggling. From The International Financing Review.

The distortion of the credit markets by central banks has produced the ultimate oxymoron: negatively yielding high-yield bonds.

About 2% of the euro high-yield universe is now negative yielding, according to Bank of America Merrill Lynch.

That percentage would rise to 10% if average yields fall by a further 35bp, said Barnaby Martin, European credit strategist at the bank.

So we now need a new name for what we used to call high-yield bonds. I guess junk bonds still cuts it although even it feels a bit awkward. We even got some examples.

Irish paper packaging company Smurfit Kappa (BB+/BB+), for example, has a €500m 3.25% June 2021 bid at -0.012%, according to Tradeweb data.


American metal packaging Ball Corporation (BB+ from S&P) also has bullet bonds in negative territory. Its €400m 3.5% December 2020s are quoted at -0.003%.

As you can see the negative yields are marginal but we have learnt that these things have developed a habit of starting and then spreading. Especially as we note what is driving it.

He said the first signs of negative yielding high-yield bonds emerged about two weeks ago in the wake of Mario Draghi’s speech in Sintra where the ECB president hinted at a further dose of bond buying via the central bank’s corporate sector purchase programme. There are now more than 10 high-yield bonds in negative territory.

Personal Injury Claims

This morning my own country the UK has shown how negativity if I may put it like that is spreading into other areas. From Reuters.

Britain’s Ministry of Justice said it plans to change the discount rate applied to personal injury lump sum compensation payments to minus 0.25% from minus 0.75%, it said on Monday.

The decision follows a review started by the Lord Chancellor earlier this year and follows lobbying from auto insurers, whose profits were hit by the decision to cut the so-called ‘Ogden Rate’ from 2.5% in 2017.

As you can see the Lord Chancellor was apparently having the mental equivalent of a nap in the period from 2009 to 2017 as interest-rates and yields plunged. So the legal profession I suppose lives up to its reputation for being out of touch. But the serious point is one we have looked at regularly which is how do you make provision for the future when you are facing negative returns which are increasingly permanent. I doubt their Lordships look at it like this but this is another consequence of the UK Index-Linked bond or Gilt market being eye-wateringly expensive. Why? Well in an era where conventional bonds are so expensive investors drove the price of linkers up as well because otherwise they offered more yield.

So the natural place to invest much of a compensation payment is seeing its own outburst of negativity as real yields have been negative for a while. The issue is complex as Stewarts Law who were one of the few to think this rate would stay negative seem to have a rose-tinted view on wage growth.

This makes it impossible to ignore the long-standing economic phenomenon of earnings-related inflation rising faster than prices inflation.


How low can things go?

I am reminded of a research paper by the Bank of Japan which I looked at on the 24th of last month. Let us look at it from a different perspective.

In the second economy, the marginal shock occurs on top of an innovation to the Taylor rule that, on its own, would depress the policy rate to about -1% on impact. The
reversal in loan rates has been crossed at this stage.

The refer to an interest-rate of -1% more than a few time suggesting they think that it is as low as you can realistically go. This is as ever not about you and I but about fears for what more negative interest-rates would do to the banks.

with the evidence documented in Ampudia and Heuvel (2018), who document that the response of banks’ stock valuations to monetary policy shocks changes sign as the
level of interest rates decreases.

Also and this gets increasingly relevant as the credit crunch drags on things get worse as time passes.

However, these assets mature, making net worth
more sensitive in subsequent periods. Second, the impaired deposit rate pass-through as policy rates decrease substantially lowers bank profitability, especially as rates enter negative territory.

This leads them to this.

We have shown the conditions for the existence of a reversal interest rate, the rate at which monetary policy stimulus reverses its intended effect and becomes contractionary.

This should not be a complete surprise as the Bank of Japan has never really been much of a fan of negative interest-rates. It cut to what we would call ZIRP territory (0.5%) in late 1995 and did not go negative until January 2016. Even that was to a mere -0.1% as the bank’s natural caution collided with the zeal of the political appointee Governor Kuroda. Indeed it has stuck to the -0.1% level for what it calls “yield-curve control” which means that in the recent plunge in bond yields it has been holding Japanese ones up rather than down. This means that if we do end up living the lyrics of the Vapors. life may not be what many assume.

I’m turning Japanese
I think I’m turning Japanese
I really think so
Turning Japanese
I think I’m turning Japanese
I really think so


This brings us back to the issue of the long-term and the future. That is really rather different in a world of persistent negative interest-rates and yields. Think of a pension which is by definition a form of saving for the long-term. How does that work if you receive an illustration telling you that if you put £1 in you will get £0.9 back? Losses were always possible especially in real or inflation adjusted terms but the concept of expecting to lose is very different. On this road to nowhere fewer people will bother to save for the future? I recall in the early part of this century pension illustrations which suggested 5%,7% and 9% so let me throw this out there what do readers think they should say now?

We know the trend and yet the sporting world reminded only yesterday that life is complex and far from simple. New Zealand were the better cricket team but fate conspired against them as an overthrow went for six, Bottas found that a safety car turned up just in time for  Lewis Hamilton and Federer somehow lost in spite of playing so well. As an England cricket fan I was delighted with the result but could not help wondering if the Black Caps had run over a black cat on the way to Lords.

Still at least we can rely on the banking sector.

A Dutch social housing co-operative a decade ago bought €3bn derivatives from Deutsche Bank & went almost bust when they turned toxic. It later emerged that co-operative’s treasurer was systematically bribed. Deutsche now settled lawsuit for €175m ( @OlafStorbeck ).

As the the reversionary interest-rate I think we went into it as the credit crunch began and have never come out. That is why to coin a phrase it goes on and on and on.




35 thoughts on “How negative can interest-rates go?

  1. Shaun, I was reading the in the FT, how Chrisitine Largarde, should she be selected to lead the ECB, will rely on all the servants who brought us this QE bonanza of negative yields.

    I think she is a dove, not a hawk and she could even go for helicopter money in terms of un-conventional treatment. Since most consumers are debt junkies they lie prostrate awaiting Crony Leadership decisions, in effect they get dealt their hand and don’t choose a pathway.

    However for the very rare, solvent and ready cash punters the choices seem to be:

    1) Santander who pay 1.5% but only to £20K and only if you put in £500 PCM and only if you pay £5 fee PCM.
    2) The Vampire Squid (Marcus) is paying 1.5% also but of course they could disappear to the bottom of the ocean with your money.

    I think Brexit and Lagarde together with -ve interest rates could cause many folk to run for the hills, and the goldmines in them there hills.

    Are there other routes out of this mess?

    Paul C.

    • Hi Paul C

      In terms of the economy yes there is but we need to wait again for it to arrive, What I mean is that interest-rates needed to be nudged higher when economies were doing better. So in the UK Mark Carney should have backed his words with action in 2014. I am not talking about a grand move but up to say 1.5%. For the system to work we need a positive rate of interest I think.

      But for now the mood music is the other way and we are going to see more cuts which the Bank of England will presumably join in with. I would not do that as I see it as walking further into the trap.

  2. I am still trying to get my head around, why would anyone buy a “negative high yield bond”, all I can think of is for capital profit if the yield shifts in your favour or exchange rates change. So I see a speculator acquiring them and then trading on, but why would a pension fund or similar institution?
    As you can see, Shaun, I am not an economist (A Level Economics, grade E!) so an explanation would be useful. It looks like we a heading for negativity everywhere.

    • Foxy its a difficult one. I haven’t got an answer because my head hasn’t given it a lot of thought but the weather is hot at the moment.

    • indeed foxy

      all are in favor and not mention of any drawbacks , because there are many !

      but our Masters Of The Universe are (allegedly) much smarter than us mere mortals ……. and obviously great masters of disguise ….


      PS: I though the pension companies have ot buy more “secure ” bonds by law when nearing term end …… ummm. ….. what could go wrong ?

    • anyone buying a bond, or acquiring any other financial asset, is probably doing so because they wish to defer consumption. They will have likely gone through a period where they have produced and sold more of their own goods and services (in value terms) than they have consumed of others’. That’s called saving. It’s what savers do.
      In order for you to do that, somebody else within the economy has had to have consumed more goods and services produced by others, than he has himself produced and sold himself (again in value terms). He will have a debt or similar obligation that exactly matches your financial asset (in value terms again). You probably won’t have met him, you most likely won’t have transacted with him directly, but he will be out there.
      Now, over recent history, there weren’t that many who wished to defer consumption to any great extent (pension savings are a relatively recent development). There simply weren’t that many savers. On the flip side there were plenty who were happy to consume now and produce later. The imbalance meant that savers would expect to be paid to save and those wishing to consume now and produce later, by taking on a debt or obligation would have to pay to do so.

      Clearly, things have changed. The demand for savings, particularly pension savings, is huge. The desire to produce now and consume later and acquire financial assets has outstripped the desire to consume now and produce later, which creates the debts, obligations and liabilities that are the savers’ financial assets. The balance of power, if you like, has shifted. Now, in most economies, if you wish to accumulate financial assets by producing now and consuming later, you should expect to be paid way less than you might have been in the past. In some economies the shift in the balance of power has been so great that as a saver, you have to pay a debtor to create your savings.

      This situation is unlikely to change until such time as the demand to produce now and consume later is dampened (low or negative returns on savings should encourage this or possibly other actions such as raising the retirement age) or until such time as others can be persuaded to consume more now. Unfortunately those that are best placed to consume more now – most governments (with a few notable exceptions) are instead actively trying to rein in spending.

        • If you are a bank or large institution, you might have to pay the creator of the money you are holding. It might be cheaper to pay the creator of an alternative financial asset a bit less. Money is a financial instrument just like any other, having a creator or issuer that has the debt or obligation and a holder that has the asset. Just think of a simple IOU; it has a writer who has a claim against him and a holder who has the claim against the writer. All financial instruments are just a variant of a simple IOU. Money is no different, except that we have put in place the systems to easily assign the asset, such that it can be used as a means of exchange. It is still subject to the laws of supply and demand.

          • You are spot on RP & what you propose is our plan to finance production of a new commodity fuel coal replacement. CapEx / $/MWh = X forward physical deliverable contracts offered @ discount to spot of today’s industrial wood pellet. Last yr 23 million tonnes replaced thermal coal as a less than ideal, yet only viable coal replacement. This market expected to reach 40 million tonnes by 2025, given climate policy.

            Our market entry will exacerbate demand as a drop in product eliminates conversion cost, storage cost, and higher energy density provides logistical savings. Given we can deliver to market at same or better $/MWh as the incumbent its an econ 101 equation. Engaged with global generators from Europe to Japan, presently commercializing.

            What will develop will be akin to WCS discounted to WTI. Our $/MWh, via the market, adopts current wood pellet $/MWh and the wood pellet gets discounted from that for its deficiencies. Given thermal coal is an 8 billion t/yr market and presently zero supply our superior solution the forward price will perpetually be >spot, yet very stable given the competitive nature of electricity generating sources creates an natural upper and lower bound $/MWh.

            So stable, yielding forward contract akin to a zero coupon bond, physically delivering an in demand, lack of supply, and should a pension fund buy this asset to finance production its collateralized by the production plants as well.

            This solution disintermediates interest and converts to yield tied to demand for physical production.

            Making this contract a digital commodity, which is the path of money, finance, and trade, presents an asset with value not solely for our finance/ trade intended purpose but also a medium of exchange.

            I have grave concerns as much as you,and intend to be a solution. Contact/ reply and the platform will send a message and I’ll be happy to advise on our path, and what I see underway.

  3. Seems the depression that has been predicted for many a year is almost upon us, with all the fear coming from central banks and high office.

    UK Interest rates should be a few percent by now and the fake growth over the last decade should have been lower so they have some ammunition to fight it with.

    What an all mighty disaster Carney and King have been, yet some folk are calling for King to make a return.

    • Hi Arthur

      I had not spotted the calls for Baron King of Lothbury to return and suspect that boat has sailed into the sun. For me his crucial error was not to let Northern Rock go whilst protecting the ordinary depositor. It would have sent a much better message to bank management than what we did.

      As to the depression argument I worry about that. Unless something turns for the better there does not seem to be much on offer for the ordinary person, yet in some areas like technology there are great gains. Disinflation can be good, but of course for our masters it is something to be feared.

  4. As if negative rates were not bad enough(who knows how low they will take them before the whole economic system blows up?) there is also going to be massive and I’m talking double digit inflation here, as well. Central banks will keep their 2% targets and completely ignore the runaway inflation, describing it either as “temporary” or not wishing to kill the “economic recovery” by raising rates too soon, of course like Godot, the economic recovery never arrives.

    At times like these I am reminded of the words of Marc Faber who describing the policies of the central bankers as insane was asked what the solution was, he merely replied the problem with insane people is that they think they are normal! Also Bill Fleckenstein said how long would this madness continue said they will keep doing it(money printing and zero rates) until “someone takes the keys off them”.

    Just who is going to do that though?

    • Hi Kevin

      Someone who I used to discuss these things used to argue that the next blow up will be of the central banks. That relies on something else not going first but at the current rate of progress it could happen.

      • how would the BofE ‘blow up’?
        Central banks could operate quite happily whilst being completely insolvent. They could have as many liabilities as required with no assets whatsoever – in fact many argue that this is how they should operate – as an instrument of the state, issuing money that is explicitly debt free.
        Probably the only thing stopping them from doing so is those that don’t understand what a central bank is and how it operates, might be concerned that this might lead to a ‘blow up’ but without having any idea off what they mean by ‘blow up’.
        Maybe your friend could explain precisely what his fears are.

    • so, just like in Japan, where double digit inflation is ‘just around the corner’ and has been ‘just around the corner’ for decades, due supposedly to negative rates and QE…..but it never actually arrives.

      The reason is demographics. The ageing population of Japan is far more predisposed to save than to create liabilities. Savers sell more ‘stuff’ than they buy. Creators of liabilities buy more ‘stuff’ than they sell. With an imbalance manifesting itself as more of the population in the first group than in the second, you have a whole economy that is on balance trying to sell more ‘stuff’ than it wishes to buy. How on Earth are you going to get any inflation in the price of ‘stuff’, let alone double digit inflation, in those circumstances?

      How is monetary policy meant to combat the effects of demographics? It can’t combat the root cause, but it can discourage certain behaviours and encourage others. It certainly can’t combat the desire to save and encourage the desire to create liabilities with higher rates though!

      QE is just a distraction, really. QE doesn’t alter the balance of desires to save and the desires or willingness to create liabilities. QE doesn’t alter the sum of financial assets available to savers. All it does is allow savers to choose to hold financial assets that can be used as a means of exchange instead of holding long dated financial assets. It really just allows savers to move a balance from a long term savings account into a current account. Sure, it helps to meet the demand for one specific type of financial asset, but at the expense of a restricted availability of another type. So what?

  5. Hello Shaun,

    what impeccable timing ! just as another letter from my ISA company ( Nationwide) telling me that they are yet again cutting the interest rate . why? the BoE hasn’t moved has it ?

    If NIRP BIRP hits the high street I wonder what Joe Public will do ……..

    Somebody in high office must be contemplating a ban on cash ( or at least a restriction on the withdrawal sum). So here goes the plan ;-

    1, announce – 0.1 % rate
    2, wait a little while for re-action
    3, put a cash limit on with drawls to £250.00 per week , then per month.
    4, drop the rate to 0.5%
    5, with draw the £50 note as “only criminals use it”
    6, drop the rate to -1.0/1.5%
    7, with draw the £20 note
    8, as there is already a list of people who own gold – announce a “voluntary ” scheme to take the gold and replace it with “high interest” 0.75% government issued bonds
    9. drop that bond rate to 0% “these people are good citizens helping the UK ”
    10, launch the new pound and devalue it immediately

    if all else fails join the Euro , then start back at point 1 😉


    • Hi Forbin

      That road looks like the one where the IMF suggestion of e-money arrives where your cash ends the year at 97 having started at 100. Maybe Christine Lagarde will find herself applying something like that.After all why was she brought in from the IMF?

      As to your comment below we have long learnt that “the precious” is way more important than the likes of us………

  6. Hello Shaun,

    re: “On this road to nowhere fewer people will bother to save for the future?”

    no , that’s the plan . If the TBTF Banks can’t have a future then none of us will ( so they think)


  7. So how negative could interest rates go?

    Its a new are imo I don’t think anyone can answer that at the moment. What used to happen was when debt was getting out of control they raised interest rates the problem is there is too much debt on low interest rates therefore if they raise them now the house of cards collapses.

    There lies the problem and no one has the answer at the moment.

    They will just keep nudging lower imo until someone comes along with a better idea and or it causes major financial problems which forces a rethink.

    • I’d posit that they will keep nudging the rates lower until it all goes mammaries over rear end and then come up with the classic ” but nobody could have foreseen this ! ” whilst retiring on a RPI pension with only a humble Baronship to console them ….


  8. Of course negatively yielding bonds should also mean the possibility of negatively yielding loans. My daughter and her boyfriend’s combined £100k plus of fresh student debt could do with a negative yield, as opposed to the eye watering 3% over RPI they pay now.

    • Hi Hotairmail

      I am afraid that any benefits from the era of negative yields are not for the likes of us or your daughter. It is a world of Us and Them as Pink Floyd put it.

      “Forward he cried from the rear
      And the front rank died
      And the general sat
      And the lines on the map
      Moved from side to side”

      Student debt is such a mess but on we go….

      • the only real mess with student loans is calling it a loan and dressing it up to look like a loan. The reality is that if you attend university, you can ask the government to pay your tuition fees and in return, if you end up with a job that pays you higher than average, you will pay a small amount of extra income tax for a fixed number of years.
        The notional interest rate applied to a notional loan balance will, for the vast majority of graduates, be meaningless.
        Hotairmail should advise his daughter and her boyfriend to cherish their memories of their time at university, get a job they enjoy and if it pays enough for them to be taken over the threshold for the extra tax to kick in, just pay it and console themselves that it will be paying for the next generation of students to attend university and have the experiences and opportunities they had. They should ignore any loan statements and notices of changes in interest rates. They’ll probably have no effect on them.

  9. On the subject of ‘money’, I do feel we need to get back to post war levels of credit as a % of the money supply. Rather than the 97% credit we had up to the financial crisis, I feel we ought to increase the non interest bearing ‘money’ component. That could entail printing like billy-o even as we raise interest rates in order to restore ‘capitalism’. One does not have capitalism without an interest rate. A shortage of money is needed to help us decide where to put real world resources to greatest effect on the accountant’s spreadsheet.

  10. As rates go negative the banks will reap the reward, they won’t give mortgage borrowers the luxury of being paid to borrow, this will also have the effect of making mortgage lending massively profitable,imagine being able to borrow from the Bank of England at minus 5% and charge say 0.5% a 5.5% margin!

    Housebuyers are pretty close to borrowing for free now if they can get a large enough deposit(say 20% or more), my next door neighbours have recently got a 19 year mortgage(large deposit) and are paying just over 1% fixed for two years I think, when they get the rate as close to zero as it makes no difference, how are they going to get house prices to go up then? As only the amount borrowed can then be increased(assuming they keep the current deposit/LTV rules). I think that’s where the high inflation comes in, the current debt will be inflated away until new buyers can take on more debt.
    By doing this and the central banks putting a floor under the stock and bond markets every time they fall, they think they can keep this whole rotten edifice going until it sparks back into life again sometime in the future.

    • Hi Kevin

      You are right to point out that the game of boosting house prices by lower mortgage rates has mostly been used up. But I doubt our establishment has given up yet and will no doubt be back for more.

    • If one bank is borrowing from the BofE at a negative rate, another bank (or possibly the same bank) will have the same amount on deposit at the BofE earning the same (or slightly more) negative rate..

      There is no mechanism by which the commercial banking sector can borrow central bank reserves from the central bank and lend them to their customers, since their customers do not hold reserve accounts at the central bank. Central bank reserves, supplied by the central bank to to commercial banks are held by commercial banks and are mainly used to settle payments from a customer of one bank to a customer of another bank.

      The only way commercial banks could profit from central bank reserves being supplied at a negative rate, is if they could draw down their reserves as banknotes and store those banknotes securely for a cost less than the rate they would be earning on their borrowing. It is estimated that this cost is anywhere from 75bp per annum up to about 2% per annum or so. This is why those central banks that are supplying reserves at a negative interest rate are very careful not to drop that rate below this cost of banknote storage.

      So, no, commercial banks do not benefit from the central bank supplying reserves to them at a negative rate. On the contrary, commercial banks earning negative rates in the EZ, on reserves not lent to them at the same negative rate, but supplied to them in return for the commercial banks creating customer deposits, are suffering severe losses, as they don’t seem able to pass on these negative rates to retail depositors. I don’t know anyone, myself included, who is having to pay to deposit EUR at their bank.

      I would argue against negative central bank rates, not because they are a subsidy to the banking sector (they aren’t), but because they are harming the commercial banks, just at a time when we need them to be profitable so that they can rebuild capital.

        • An American bank I use charges me nothing to hold €. Having said that, a Swiss bank that also charged nothing did ask me to close my account and take my business elsewhere. I guess they just got fed up earning negative 40bp on their reserve account and paying me zero. But it’s just pass the parcel for the banks. They cannot in aggregate reduce their reserve balances just by asking customers to move their deposits.

  11. there is no fundamental rule that those wishing to defer consumption by accumulating claims on others should be paid to do so. Similarly, there is no fundamental reason why those wishing to, or willing to, have claims against them should have to pay for the privilege.

    Just like in any market, supply and demand considerations will determine the price at which an exchange is made or a contract is struck. If demand at a particular price point for any financial asset (including money) is greater than the supply, the price will move to find a new equilibrium. If that equilibrium is at a point where those creating liabilities have to be paid to do so and those wishing to hold those liabilities as their financial asset have to pay to hold them, then so be it.

    Shaun, you mention pension savings: Just a few generations ago, pension saving wasn’t really a thing. My grandfathers’ generation didn’t expect to live long after retirement at 65. They expected their families or the State to support them for the few years after they ceased to be productive members of society. They saw no need to save toward a pension. It’s only really the baby boom generation, that will be looking forward to 20 years or more of retirement, that has ramped up the demand for financial assets to levels never seen or envisaged before. Contrary to the popular view, there simply isn’t sufficient quantity of debt or obligations required to create the financial assets demanded by savers. There certainly isn’t sufficient supply of the very safest financial assets much desired by the pension industry and now by the banking sector. Without an increase in supply (which will involve Governments continuing to run deficits – probably larger deficits), or a fall off in the desire to accumulate savings, expect the returns available on financial assets to remain low or negative.

    • “They saw no need to save toward a pension. ” sorry this is rubbish , why? because I am old enough to remember that many could NOT AFFORD a pension like those of the upper classes . After WWII the state stepped in to provide a pension for the poor working class man/woman.

      oh yes , My grandfathers’ generation died of TB and the like.


      ” the baby boom generation ……. that has ramped up the demand for financial assets to levels never seen or envisaged before”

      Well that just takes the biscuit , so historical low interest rates, BTL , QE, and other financial wizardry all did nothing ? . The assets inflation we all have seen to to counter another 1930’s stock market crash and the Great Depression MKII , it has worked so far .

      Bob , you are again trying to re-write the narrative to suit nefarious ends


  12. so, trying not to make any political points, saying that back in the day most people were not able to afford to retire is the same as saying most people couldn’t produce more than they and their household consumed, so could never accumulate financial assets. If society was only able to produce enough to provide for the whole of society, with all possible resources geared toward production, then it was simply impossible for anyone to retire or otherwise stop producing. The state pension when first introduced covered men only, and retirement age was set at 65 when male life expectancy was about 63. The state pension was then, as it is now, a direct transfer of the means of purchase from the working population to the retired. Introducing a state pension was only possible, however, because productivity improvements meant that the working population was able to produce more than it needed to consume and thus the excess could be consumed by pensioners. Without that productivity improvement, universal retirement would simply not have been possible, no matter how it was accounted for.

    It was an excellent idea, still is an excellent idea and it is one that doesn’t require the accumulation of financial assets by anyone. Private pensions and personal pension plans, however, do rely on the accumulation of financial assets – vast amounts of financial assets, which in turn requires vast amounts of debt, liabilities and obligations. The mismatch between the demand for financial assets and the willingness of debtors to create them is what has driven interest rates on money and the returns on financial assets to such low levels.

    Low rates or even negative rates are not some sort of dastardly plot by some shadowy elite to protect ‘the precious’ or whatever other silly names you want to come up with. It’s just the inevitable consequences of a supply/demand mismatch. No mystery. No conspiracy theory.

    Whilst we’re at it, QE is not some dastardly plot either. QE just converts some of the long dated financial assets available to savers into financial assets that can be used as a means of exchange, which are also going to be held by savers and are being demanded by savers. Unfortunately, QE doesn’t change the total quantity of financial assets available to savers, so it cannot address the overall mismatch in the supply of and demand for financial assets. It just changes the composition of those assets. Nobody has been forced to swap their longer dated financial assets for financial assets that can be used as money, everybody who swapped them did so because they wanted £100 of money in a current account rather than £100 in a long term savings account. That’s it really.

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