'Bond King' Warns: Negative Interest Rates Are Going To Backfire
Negative much? Jeff Gundlach, billionaire founder and CEO of hedge fund DoubleLine Capital, says negative interests rates are a horrible idea that will send "banks crashing and stock markets tumbling."
A new monetary experiment, the idea behind negative interest rates is to encourage investments by penalizing depositors for storing money—as opposed to the normal model of paying interest. "Negative rates are really bad," the so-called Bond King warned this week.
While the idea appears feasible on paper, the policy's never been tried on a grand scale before, leaving limited knowledge—and little historical evidence—of its impact, CNN Money reports.
But that isn’t stopping central bankers in Japan and Europe (Denmark's National Bank and the Bank of Japan pictured), who have embraced negative rates in efforts to stimulate growth. Even the Fed recently sounded open to the idea in the case of a crisis.
But Gundlach isn’t on board—he believes negative rates are spooking global markets, noting that stock markets in Europe and Japan are below where they were before the introduction of negative rates. “It’s going to backfire like an old Model T,” he says. [CNN]
