Economists Mystified that Negative Interest Rates Aren’t Leading Consumers to Run Out and Spend

"It is apparently difficult for most economists to grasp that negative interest rates reduce the value of those savings to savers by lowering the income on them. Savers are loss averse and thus are very reluctant to spend principal to compensate for reduced income. Given that central banks have driven policy interest rates into negative real interest rate terrain, this isn’t an illogical reading of their situation. Ed Kane has estimated that low interest rates were a $300 billion per year subsidy taken from consumers and given to financial firms in the form of reduces interest income. Since interest rates on the long end of the yield curve have fallen even further, Kane’s estimate is now probably too low."

"Earth to economists: savings and spending may look fungible to you because they are alternative uses for income but they serve very different functions. Once people have put enough away that they have a good reserve for emergencies and enough to have a comfortable retirement, then saving and spending can be regarded as close substitutes. But in the US, with safe income on investments running below inflation levels, and Medicare being actively crapified (for instance, a 70 year old friend with a bad leg break is having to pay for $25,000 of expenses in a rehab facility herself), a retirement-aged couple would need over $3 million in liquid assets to allow for 20-30 years of living expenses and possible medical costs. How many are in that boat?"

Link here.