New ECB President, Christine Lagarde, Praises Negative Interest Rates


Christine Lagarde, the head of the IMF, will become the head of the ECB. Already, she has made a fool out of herself.

Following a two-day marathon in which "Spitzenkandidat" Failed and Merkel's Plan A and Plan B Dumped Lagarde will now head the ECB and give up her job at the IMF.

Nearly Perfect

It's rare to find someone who is consistently wrong on everything. Christine Lagarde, whom the EU just anointed as the president of the ECB, comes close.

To emphasize the point, Negative Interest Rates Benefit the Global Economy, Says IMF Chief Christine Lagarde.

Subzero interest rates in Europe and Japan are “net positives” for the global economy, International Monetary Fund chief Christine Lagarde said Tuesday, though she warned that the side effects of unorthodox central-bank policies should be closely monitored.

“We see the recent introduction of negative interest rates by the ECB and Bank of Japan —though not without side effects that warrant vigilance—as net positives in current circumstances,” Ms. Lagarde said.

Compromise Candidate

French President Emanual Macron proposed Lagarde as the "compromise candidate".

Even Lower

Yield on the German 3-month bond is -0.556%. Yield on the German 10-year bond is -0.373%.

"Net Positive" Nonsense by the Numbers

Negative interest rates

  1. Keep zombie corporations alive
  2. Punish savers
  3. Foster economic bubbles
  4. Foster income and wealth inequality
  5. Encourage leverage
  6. Punish banks by charging them interest on excess reserves

Diminishing Returns

If negative interest rates did any good, why are Europe and Japan in such miserable shape?

Yesterday, I noted the BIS Warns of Diminishing Returns of Monetary Policy, Zombies, Junk, Complacency.

BIS Comments

  • "Fundamentally, monetary policy cannot be the engine of growth."
  • "As mutual funds and other institutional investors have increased their holdings of lower-rated debt, mark-to-market losses could result in fire sales and reduce credit availability."
  • Low interest rates "crowd out resources available to more productive firms."


Globally, central bankers are hell bent on pursuing the same bubble-blowing policies that led two huge economic busts.

This third bubble is the biggest of all but they do not see it.

Meanwhile, there is no impetus for change anywhere, except in the wrong direction!

Wrong Cake

The appointment of Lagarde is icing on the "If it doesn't work, we will keep doing it, until it does" cake.

Rules, Rules

The ECB is running out of sovereign bonds to buy, by current rules.

Lagarde will also face a test regarding budget deficits and debt in Italy and the deficit in her own country, France.

How many rules will Lagarde break?

Mike "Mish" Shedlock

Comments (35)
No. 1-23

"Side effects that warrant vigilance" That's a tad bit of understatement when pouring gasoline on a fire.


They've been steadily preparing the public for negative interest rates for a few years. This isn't idle chatter, they fully intend to move well into NIRP territory soon. Europe and Japan first, with the US to follow.

I read somewhere months ago that central bankers were crowing about "safely" going as low as -4%. It's completely bonkers, but after all this talk can anyone be surprised?


Mish, in your 1-6 you missed 7.

  1. Instil fear in consumers leading to reduced spending.

Demand matters.

Germans will be softened up even further to go along as a matter of "solidarity" as they become further financially repressed.

Bank losses were socialised. This time sovereign debts across EU will be socialised with the "social" part being the Germans. They'll be happy so long as the Euro is lower than the DM would have been, until the Titanic finally meets its fate and it's everyman for himself.

France wins again.


The balance of power has shifted West and East. Germany could often rely on the UK in the EU Parliament Now the voting beneficiaries (x-UK) are France and Spain that will largely side together.

The result - less influence for Germany. Socialist & Green Germans probably ok with that. What about the others?


Mish: "This third bubble is the biggest of all but they do not see it."

I am done giving central bankers the benefit of the doubt on this. I think they see this is potentially a bubble. Where they fall short is that they think asset prices can be made to continually go up with the right mix of CB policy, and they have enough hubris to believe that they can bring this about without any serious adverse consequences. It will only be a bubble in hindsight, if they fail.

I think they are effectively stealing via counterfeiting, but they do not see it that way since they can plausibly argue that their actions help the economy in the long term, that the economy will eventually grow to match the additional credit in circulation, and that they can also withdraw the additional credit at some point when markets stabilize. They are devious, not unobservant.

A CB sponsored ramp in asset prices is never a bubble unless it pops. Mystery solved.