The transition from ZIRP to NIRP reverses the flow of interest payments in all credit transactions.
It is the equivalent of making a river flow uphill.
Imagine a mountain creek going downhill with a steep slope. It’s not a lot of water but it’s fast and has a lot of energy and can drive a sawmill with ease. That’s the velocity of money in a high interest rate regime.
As we come closer to the valley, many tributaries unite and form a bigger river with less of a slope. Still noticeable speed though. Like the Inn in Austria or the Limmat in Zurich.
That’s a 5% interest rate equivalent.
As we reach flat country the rivers unite to form mighty streams that meander all over the place, slow and very broad water masses. The Orange river in Namibia is a good example – the streams in Europe have been straightened by humans; the Orange river is still in its natural shape. It’s slow and big, that’s the slow velocity of money , coupled with enormous moneyprinting, that is the current ZIRP regime – a giant slow mass of money.
So what will happen if the Orange river meets an ever so slight slope upwards. Well maybe there’s a river magician that will summon the water to flow uphill?
That’s the equivalent of the introduction of NIRP, the magicians being Yellen, Kuroda and Draghi. The river will not care and form a huge lake. Velocity of money will drop to zero. Credit will not be issued. The money markets will freeze up. Commerce will freeze up.
Oh and BTW. They might be able to force commercial banks to punish depositors with negative interest rates – but there is no LEGAL basis under which people can be FORCED to do business with such a bank. NIRP necessitates coercing people forcefully into having their money stolen. There is NO WAY NIRP can be introduced on a voluntary basis.
Abolishing cash will become necessary as one of the coervice measures. Let’s leave all the other unpleasant measures to the imagination; let’s just conclude by saying: Pushing NIRP through is like punching water hoping it suffers damage. What WILL suffer damage is the legitimacy of any institution that helps in the coercion.