We already have negative real interest rates at the moment, with the interest far lower than the rate of inflation. But negative nominal rates would represent a complete break with the status quo: depositors would have to pay their bank, rather than the other way around.
negative interest rates would decimate savers. They would be the sort of policy that is almost designed to undermine the middle classes, especially those with relatively modest assets and savings. They would chip away at a key foundation of capitalism and a demographic with a vested interest in its preservation; down that road lies Italian or French style poujadisme and middle England rage.
The Centre for Policy Studies provides useful context. QE has already been larger, relative to GDP, in the UK (22 per cent) than in either the US (13 per cent) or the Eurozone (4 per cent). It has helped mop up 46 per cent of the massive issuance of UK sovereign bonds over the past five years – the volume of outstanding gilts has increased by two and a half times in just five years, by £832bn, the equivalent of £33,000 for every UK household, much of which has been monetised. QE has crippled savers, who are losing an estimated £65bn a year in interest forgone, according to Ewan Stewart, author of the research. Between January 2008 and December 2012, sterling lost 17.2 per cent of its purchasing power thanks to inflation. Why are we still so obsessed with loosening monetary policy yet further?
I recommend the whole article.
Also worth reading is the latest from Westminster's most promising MP, who recently made an appearance on Newsnight:
Having mostly failed to see this crisis coming before failing to predict even the general pattern of events, senior economists now want more of the medicine which already nearly killed the patient. This may look like madness or stupidity to those of us without a high level of formal education in economics. It is neither. Contemporary economists are trapped in an intellectual prison founded on now-old errors of method and epistemology: the knowledge and simplifications necessary to make their mathematical models work are unavailable and invalid respectively.
We have been on a merry-go-round of deficit spending, excruciating taxes, heavy borrowing and easy money for most of 40 years. That merry-go-round is now running down and will stop. Attempts to spin it up through monetary policy are extremely dangerous: they will store up worse trouble for later.
If the Government does not act to end expansionist policy in time by a return to balanced budgets, by ending government borrowing from the commercial banks, by stopping quantitative easing and by letting the market determine the height of interest rates, then it will have chosen the German way of 1923.
It will be extremely difficult to convince those clasping the levers of power - at the Treasury and the Bank of England - to give up their absurd attempts at monetary central planning, but it is reassuring that some in positions of influence recognise the madness of current policy.