The effects of negative interest rates + QE not working

Is negative interest rate really wise?

Many Central Banks around the world are now penalizing commercial banks for holding too much deposit with negative interest rates, hoping to encourage more lending to companies and enterprises, which can then hopefully hire more people and thus economic growth for the country.

However, apart from a few cases where counties with relatively more stable currencies (e.g. Switzerland) are trying to fend off too much currency appreciation, there is something very unnatural about penalizing saving and encourage debt creation. Does negative interest rate really work as a stimulus? Here are some food for thoughts based on my limited knowledge:

Impact on Capital

Capital is not simply cash at the banks, but money that are used to fund economic activities (the machine) to create products and services (added value).

In an era of negative interest rate, lenders would rather use up their capital rather than saving it, which attract negative interest penalties. Hence you can argue that less lending would be possible by the banks in the near future. 

So negative interest rate actually shrinks the available capital in an economy over time rather than increasing capital. The only thing that expands quickly is debt (cheap loans), and asset prices (such as stock and housing bubble) as investor pile more money on assets that provide better return relatively. 

  

QE doesn't work the way we want it to?

Some of these countries are also undergoing Quantitative Easing (i.e. printing money to increase liquidity, hoping companies will do something good with the cheap money, hoping that the depreciation of the currency will help export...etc, and then hopefully revive the economy). But does it really work?

First of all, no countries will be able to print their way our of a recession. A currency's value needs to be backed-up by products and services, the country's economic output and economic strength. The hope is that with increased liquidity to companies, there will be more economic output.
Cheap money will encourage companies to borrow more, that bit seems to make sense. However, if you are the CEO of a big company, is it really in your best interest to use this cheap money to invest to create real future values? 

R&D or other investments will take 5-10 years to show results. Most CEOs will not be in that position for that long, so strictly speaking there are little incentives to invest for the long term. Many executive also have Share Options which would benefit from higher share prices. There is nothing stopping them from using some of the cheap money to do a Share Buyback (when companies back back its own shares as a way of using cash at hand). This way, the executives benefit, the share holders benefit and the company enjoys a higher earnings per share status (because of less shares in circulation not due to higher earnings) which might allow it to finance and borrow even more money... And so the circle of events continues. In the mean time, the companies are not profitable, if anything, they now have a lot more debt.

When investors see a lot of share buybacks of this type happening in the market, it is perhaps wise to tread carefully.