

Imagine this: "Once upon a time, people actually got paid to lend money," said Matt O'Brien at The Washington Post. "It was something early humans called 'interest.'" Crazy, right? I kid, of course; getting paid for loaning someone money has been a bedrock financial rule for millennia. But over the past year, a number of the world's central bankers have done "what didn't seem possible before" and turned this age-old idea on its head. Desperate to stimulate economic growth, central banks in Japan, the Eurozone, Denmark, Sweden, and Switzerland — countries that account for nearly a quarter of global GDP — have slashed interest rates to below zero, essentially forcing big financial institutions to pay central banks to hold their money overnight. In economic terms, this is about "one step away from dogs and cats living together." The idea is that the commercial banks won't want to pay to park their excess reserves and will instead be motivated to lend that money to businesses and consumers, which will in turn spur economic growth. But the truth is, sub-zero interest rates are uncharted financial territory. No one really knows what will happen next.

How negative interest rates might affect ordinary consumers is also largely unknown, said Neil Irwin at The New York Times. Right now, negative rates only really govern money that big institutions stash with central banks, but the effects could easily trickle down, in the form of "fees for keeping money" in ordinary savings accounts. And don't think the U.S. is immune from such a "mind-bending" turn of events. Federal Reserve Chair Janet Yellen told Congress last week that while she didn't think pushing rates below zero would be necessary, "she also didn't rule it out." The Fed has also quietly asked major U.S. banks to test what would happen to their finances if rates went negative. Economists, accustomed to treating sub-zero rates as an "intellectual curiosity," are only just beginning to imagine the "weird things" that might start happening. "For example, would people start prepaying years' worth of cable bills to avoid having money tied up in a money-losing bank account?"

It's hard to overstate just how topsy-turvy this "strange new world" is, said Clive Crook at Bloomberg​ View. Years of quantitative easing and low interest rates from central banks were themselves "a journey into the unknown." Now that we're talking about additional adventures, into negative-interest territory, "unforeseen complications" could easily arise. That's why central banks — and the Fed in particular — need to be exceedingly careful in the months to come, said Gillian Tett at Financial Times. Our already jittery markets are getting seriously spooked by all the uncertainty. At a conference I attended last week with some of the "most powerful and savvy asset managers in America," two-thirds of the participants said they now believe the Fed will actually cut interest rates this year, a marked departure from expectations just a few weeks ago. Investors are entering a "bewildering Alice-in-Wonderland world," and we can't "afford to let market imaginations run (any more) wild."