The Frugal Planner's Weekly Dispatch, Volume 2, Issue 8
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From: Chuck Donalies, CFP® Sent: Friday, February 19, 2016 8:59 AMSubject: The Frugal Planner's Weekly Dispatch, Volume 2, Issue 8
Frugal Planner's Weekly Dispatch
Volume 2, Issue 8 February 19, 2016
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friends and family?
Yes, I own a Superman cup. It's perfect for my
morning protein shake.
Read on to find out how Superman and the villainous Bizzaro
relate to the world of finance.
Comic Book History! This will make sense, I promise:
Bizzaro World was first introduced by DC Comics in the 1960s. This
world's "hero" is actually a supervillain named Bizzaro
and he's the complete opposite of Superman. For example, Superman
has heat vision and Bizzaro has freeze vision.
Apparently, the Bizzaro World is bleeding into our universe
because positive interest rates are being replaced by negative interest
What Are Negative
probably understand how traditional (positive) interest rates work.
You lend money to someone, like a bank, and receive payment(s) for
the use of your money.
Negative interest rates (henceforth known as Bizzaro Rates) are the
complete opposite: You pay someone, like a bank, for the privilege
of holding your money. Crazy, right? I don't know about you, but
paying a bank to hold my emergency fund* just doesn't seem right.
*You have an emergency fund, right??
Why Use Bizarro
Rates may be a foreign concept to us, but their rationale makes
sense. People and businesses should have a greater incentive to
lend, spend and invest when there's a fee for sitting on cash.
Bizzaro Rates are one more way central banks can stimulate an
In fact, the European Central Bank, Swedish Riksbank and Bank of
Japan recently started using Bizzaro Rates and Janet Yellen, Chair
of the U.S. Federal Reserve, hasn't ruled out using Bizzaro Rates
in the future.
So What's the
being weird (one might even say bizarre), the problem is that
no one really knows how Bizzaro Rates will affect the economy or
the behaviors of consumers and businesses. There are bound to be many unintended
consequences of using this financial tool. For example, high
Bizzaro Rates might cause consumers to hoard large sums of cash in
their homes (not exactly a safe practice).
Should You Be
Bizzaro? No. He's a comic book character.
Of negative interest rates? No. Other countries are being extremely
cautious when using Bizzaro Rates. I'm sure the U.S. Federal
Reserve is monitoring the implementation and results. For now, I
would not expect to see this tool of monetary policy used in the
U.S anytime soon.