In both situations described above, negative rates are a sign of real problems. When governments feel that negative rates are the best way to get banks to lend, clearly the risk to lending exceeds the benefits in the banks’ opinions, and the government is trying to force them against that conclusion. Similarly, when investors are willing to lose money to stay safe, economic growth is not going to happen, as the animal spirits just aren't there. In both cases, it’s something to worry about, and we should.

That said, negative rates are just one more central bank tool, not a sign of the imminent apocalypse. Europe has had them for going on two years now, and the economy there continues to improve, albeit slowly. The worrisome thing about negative rates is the very clear message they send: the central banks have run out of options. Monetary policy is now spent. Any further economic rescues will have to come from government spending, which has its own set of problems. The central banks have done all they can.

This kind of regime change is always difficult. Central banks have provided a security blanket for markets and economies for a generation now. With monetary policy tapped out, the future will probably be much more volatile—and, for markets that have grown used to stability and security, that will be a terrifying experience.

Is the U.S. likely to see negative rates?

I would argue no, or at least not until the next recession, at the earliest. Right now, lending is actually growing at a healthy rate here in the U.S., and taking this kind of step is unnecessary.

That might change in the next recession, but even then, there are structural issues that would make negative rates very difficult to implement here. I certainly wouldn’t rule it out at some point, but as of now, there is no need to introduce them.

Brad McMillan is the chief investment officer at Commonwealth Financial Network, the nation’s largest privately held independent broker/dealer-RIA. He is the primary spokesperson for Commonwealth’s investment divisions. This post originally appeared on The Independent Market Observer.

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