(ABC News) - Governments around the world are running record budget deficits, and central banks are becoming addicted to easy money policies that would have been unthinkable two decades ago.
Over the past decade, the European Central Bank, the Bank of Japan, as well as central banks in Denmark, Switzerland and Sweden have experimented with negative interest rates. In other words, banks are being forced to pay to their park excess cash at the central bank.
Once unthinkable, negative interest rates are now accepted practice, even if they have a spotty record of achieving their stated policy goals.
What’s more, negative interest rates have become entrenched, with only Sweden managing to wean its economy off the stimulus and return rates to positive territory.
The US Federal Reserve and the Bank of England, which have long resisted negative interest rates, are now under huge pressure to follow the course set in Europe and Japan.
The Bank of England has flirted with going negative for some time. On Thursday, policymakers gave banks another six months to prepare for negative rates, while insisting they should not be seen as inevitable. In the end, the biggest output drop in centuries could force UK rates into negative territory, leaving the US Federal Reserve as the only major central bank to not take the plunge.
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