Note to Central Banks: If You Want Inflation, You Must Increase Money Supply

WSJ: Negative Rates Around the World: How One Danish Couple Gets Paid Interest on Their Mortgage

Hans Peter Christensen got some unusual news when he opened his most recent mortgage statement. His quarterly interest payment was negative 249 Danish kroner.

Instead of paying interest on the loan he got a decade ago to buy a house in this northern Denmark city, his bank paid him the equivalent of $38 in interest for the quarter. As of Dec. 31, his mortgage rate, excluding fees, stood at negative 0.0562%.

...“My parents said I should frame it, to prove to coming generations that this ever happened,” said Mr. Christensen, a 35-year-old financial consultant, about his bank statement.

Why the strange occurrence? Denmark's central bank isn't trying to keep inflation low, or generate full employment. It is trying to prop up the euro.

In Denmark, the central bank, Nationalbanken, doesn’t have an inflation target. Its goal is to keep its currency steady against the euro to protect trade with the eurozone. With the euro falling in recent years, the Danish central bank cut rates repeatedly, going negative for the first time in mid-2012 in a bid to keep its currency in check. The policy has achieved its main objective, Moody’s Investors Service said in a recent research note, because appreciation pressure on the krone has “disappeared completely.”

Sweden was even dumber, trying to import inflation without growing the money supply:

Sweden’s Riksbank, the world’s oldest central bank, first went negative in February of last year in an effort to import inflation. It hoped that a weaker Swedish krona would make goods coming into the country more expensive, raising domestic prices. But it hasn’t hit its 2% inflation target in more than four years, and any significant uptick in prices has yet to materialize.

It's not printing money, it's simply cutting interest rates, which signals to the market that inflation is falling.

After 8 years in a row of doing the same thing, and getting the opposite results, you'd think there might be one central bank with the wisdom to try doing the opposite.