Quote of the Day: What Goes Around Comes Around, Even Central Banks Suffer from Negative Rates

Spontaneous Finance Blog's Julien Noizet pointed out that the perceived "free lunch" from negative interest rates hasn't been free, not even for central banks which has implemented them:

Central banks are indeed big players on the market due to their OMO and related policies that involve purchasing and selling billions of assets in order to influence market prices, aggregate amount of high-powered money and interest rates. They also invest in other currencies and commodities and place cash with other central banks.

Unfortunately, a number of their placements are now generating negative returns and yields on their fixed income investments (often government bonds) are now very low, if not negative.

The irony of the whole situation is that central banks initiated their conventional and unconventional policies partly in order to help (i.e. force) the private sector to take more risks (‘search for yield’). What goes around comes around, and it is now central banks’ turn to follow the same route. In short, they are now turning into vulgar commercial banks that attempt to please their shareholders (i.e. budget-constrained governments who need this cash).

But in doing so, they also potentially endanger their capital base.

If something cannot go on forever, it will stop (quote attributed to the late economist Hebert Stein)