Have ever thought, even in your wildest dreams, that you will be paid to borrow some money? I know it sounds dumb but it actually happened in Europe.

Now before we go into the details of why Europe implemented negative interest rates it’s crucial to understand the concept. When an economy is in a deflationary spiral i.e where prices are tanking to everyday lows, profits are down, decreased spending there has to be some sought mechanism to boost public spending. Which effectively means that people need to borrow at lower interest rates. If the circumstances are dire then the central bank has to step in and decrease the rates below zero. You might ask why would the banks be willing to lend to loss in the first place. Well, it turns out that private banks park their money at the central bank to earn small interest which the central bank then lends to the government. Remember that the incentive to deposit is to earn some interest. But as the interest rates have tanked you have to pay the bank to store your money. I know it sounds scary!. So why would a bank deposit when it has to cough some of its own money ?. Hence lending in the short term is the only way banks can survive in the deflationary cycle.

Now coming to the case of Europe, most of the investors’ money was put to no good use. Literally, they were sitting idle. And now buy slashing interest rates first they devalued the euro. The idea was to discourage the foreign investors parking their money in Europe and private banks from holding cash. And of course, it also boosts exports.

This all boils down to one thing. You can buy new Apple products by borrowing !!.