Which leads me to another phrase: 'thinking outside the box'. Not quite as cloying as 'blue skies thinking', nor as irritating and overused as 'transparency', but certainly the type of jargon I try to avoid. But I think you'll find that the concept, let's call it 'lateral thinking', will be increasingly bandied about over the coming months.
The reason is that so many financial instruments are trading at levels that we find hard to believe. Take the UK's base rate, which has been stuck at a record low 0.5 per cent since 2009. Holding above 4 per cent nearly all the time since 1945, with a frightening peak at 17 per cent in 1980 and a median closer to 6 per cent, this is now considered the 'norm' for Britain. But look back to the 19th century and you will see that most of the time it was set at 2 per cent or lower - except a truly horrendous peak at 50 per cent (discount rate) in 1815, just before the battle of Waterloo. Behavioural finance calls this anchoring bias, where we assume what we have lived through is the norm.
UK base rate
Another highly unusual feature today is negative nominal interest rates (not real ones which can be seriously negative at times of high inflation). Again, bias leads many to assume this is a temporary aberration. Denmark has had negative rates on certificates of deposit since Q3 2012. German two-year government bond yields have been trading close to the ECB's deposit rate of minus 20 basis points since this was introduced in Q1 2015. The Swiss are streets ahead with a negative 85 basis points (two-year sovereign) since January. Oh, but that's a special case, they'll say. Last week, Mark Branson, head of Swiss regulator FINMA, said: "It's possible that low interest rates could last not only years, but decades. Banks and insurers need to be able to survive in such a situation."
German two-year Schatz
Swiss 10-year Conf
As yet retail depositors have been shielded from this as laws and commercial decisions have prevented the deduction of interest on deposits - although a few Danes have received interest on outstanding mortgages. Some UK banks are tempting customers with 'cashback', a form of reverse charges, NatWest on utility bills and Santander on credit card payments.
Danish certificates of deposit
This week the Adam Smith Institute floated the idea of 'negative income tax', all tax credits replaced by this which would act as the minimum income, tapering off as employment earnings increased. Cheaper to administer, in-work poverty the biggest challenge for developed markets - caused by globalisation, technological change and poor productivity.
Where has all the money gone? Mostly into assets, not wages or retail prices which, another surprise, are falling in many countries. Why aren't low rates working? Because the effects of rate changes are asymmetrical, sudden hikes requiring immediate action while minuscule cuts from ultra-low levels merely push on a string.
