The Damocles Impact of Sub-Zero Interest Rates

by Jörgen Eriksson on May 28, 2015

Damocles swordDamocles was a courtier at the court of Dionysius II of Syracuse, a fourth century BC Greek city-state tyrant. As legend tells, Damocles exclaimed that as a great man of power and authority, Dionysius was truly fortunate. Dionysius offered to switch places with him for a day, so he could taste first hand that fortune.

In the evening a banquet was held where Damocles very much enjoyed being waited upon like a king. Only at the end of the meal did he look up and notice a sharpened sword hanging directly above his head by a single horse-hair. Immediately, he lost all taste for the amenities and asked leave of the tyrant, saying he no longer wanted to be so fortunate. Dionysius had successfully conveyed a sense of the constant fear that comes with living at the edge of risk.

Today we live in such a time of risk, as interest rates in the advanced economies are set to be lower and lower, and many Economists are concerned this may ignite extremely dangerous deflation. We have written about this in two articles recently, In Denmark You are now Paid to take out a Mortgage and How low can the interest rates go?

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Now deposit interest rates at the ECB and some other European central banks are below zero. In a video from earlier this week, the Financial Times Christopher Thompson and Ferdinando Giugliano discuss why central banks took such a dramatic step and if negative rates are having the desired effect.

Sub-zero Rates

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