Negative interest rates represent a major assault on savers everywhere and speak clearly about the bankruptcy of monetary policy as an economic stimulus tool. Lowering interest rates worked for a while. It has been shown, however, that the U.S. economy hit what Keynes referred to as a “liquidity trap”- a point of paralysis for monetary policy as a stimulus tool. Any lower level of interest rates will not improve the performance of the economy. Negative interest rates, consequently, are a desperate attempt by central banks to rescue a failed policy. Faced with massive cumulative budget deficits, negative interest rates allow governments to continue borrowing and simultaneously collect the equivalent of a tax from savers in order to sustain deficit spending. In this regard, the government borrows and the saver pays the government to do so. The efficacy of such policy requires the buyer of government bonds to forego positive interest rates. The government will use his/her money to spend on whatever project it chooses. In this case, the efficiency of projects and their suitability for economic growth can never be ascertained. The government makes money the more it borrows regardless of what projects it invests in. and the money generated is not considered a tax. Further, the tax is discriminatory as it is imposed only on those who have saved, thus punishing them for postponing consumption. This manipulation of interest rates must be judged in terms of its effects on exchange rates and the all-inclusive taxation level.

In terms of methodology, the analysis followed developments that occurred in a few countries in the world and for a limited period of time, about three years. Japan was the biggest borrower in this inverted market but was not able to achieve prosperity. The people of Japan finally woke up and decided to buy safes to store their money into, instead of buying government bonds. No success could be documented in order to confirm the efficacy of this policy. The world should be grateful that the central banks of the world finally woke up and arrested the descent into oblivion. This paper provides foundational discussions on economic theory and how governments can distort economic realities and turn rational economics on its head.