The possibility of endless dropping of yields until rates reach negative 8% (as suggested by one expert) is nonsense. The economic crisis that enabled negative rates somewhat like the 1962 Cuban missile crisis where stakes of failure were so high that everyone needs to pitch in and help compromise to avoid war. It was a new era, despite the cliché that people never change and thus (the old cliché) wars will continue to occur; but that is no longer applicable.
So by analogy, possibly the advocates of Quantitative Easing (QE) and Zero Interest Rate Policy (ZIRP) will realize how dangerous it is and the opponents will be assertive enough to persuade government policy makers to stop it. Precedents for new economic era include Volcker’s 1979-1986 tightening, Reagan’s 1986 tax cut, the 1991 collapse of the USSR. All of these seemed unlikely, yet they occurred.
The difference between monetary policy, which uses QE and ZIRP, versus fiscal policy is that negative interest rates don’t motivate businesses to buy capital equipment because they are afraid of the risk of failure and inability to repay principal. By contrast, if a bridge building company gets a contract to build an unneeded bridge in a government subsidized make-work project (fiscal policy) the company is glad to earn money doing so. The same company would be reluctant to expand solely because of an offer to borrow money with negative rates, if they had no work contract to build something. Negative rates are hugely damaging to the insurance companies and banking system which needs to pay depositors positive rates and charge a spread of 2.0% to 2.5% over their cost of funds to be financially healthy. Negative rates are deflationary as they rob retirees of purchasing power, forcing them to either re-live the Depression by cutting consumption, or take a dangerous gamble on overpriced stocks that are now in the 99th percentile of high PE10 ratios (where high PE is bad) that tie with 2000 and 1929 for being the worst in history.
Insurance companies are raising rates since they don’t earn enough on their bond investments, thus their higher fees squeeze consumers who must then cut back on other consumption, which is deflationary. The Fed’s bond holdings from QE purchases produce a yield that they donate to the U.S. Treasury, thus QE acts like a deflationary tax increase (raising taxes is deflationary) by taking that yield away from private sector investors who used to own bonds that were acquired by the Fed.
I think the Democrats will prefer fiscal policies (the ability to fund infrastructure, jobs creation projects, etc.) over monetary policies, so if they win 2020 this could lead to ending ZIRP style monetary policies.
Ending negative rate policies in the EU and Japan may actually stimulate their economies by putting more income into the hands of retirees and savers and by reassuring businesses that central banks are retreating from bizarre, dangerous, disruptive schemes. A key component of making the economy grow is to reduce risk for businesses so as to encourage them. Negative rates create a climate of perceived risks and actual risks, much like raising the discount rate in Discounted Cash Flow analysis when a risk premium needs to assessed against a risky project.
Investors need independent financial advice about negative yields.