American banks were set to charge savers for the privilege of looking after their money instead of paying them interest, he predicted yesterday.
The practice, virtually unknown except in Switzerland, would make depositing money with a US bank an expensive form of saving. Instead of earning interest, savers would see their deposits shrink in value. It might be easier to spend.
At a seminar in London yesterday Mr Clough said: 'I would not be surprised if short-term interest rates go negative.'
'Banks have more deposits than they can lend out,' he went on. They were keen to reduce deposits and to cut back lending and were busy 'downsizing their balance sheets'.
America was experiencing a credit contraction that would be repeated soon in Japan and then in Europe.
'The US is a laboratory for what will happen in the UK,' Mr Clough added.
He said that in a credit contraction employment did not grow at all, prices and profits did not grow much but cash flow did. 'This is very constructive for the equity market,' he declared.
The third feature of a credit contraction is a fall in interest rates. Short-term rates in the US have come down from 12.6 to 2.9 per cent in the past 10 years.Reuse content