Topic: Negative Interest Rates (Read 2394 times)

injecting money into the economy through quantitative easing and then punishing people for keeping them in bank accounts just spells doom

But also no country can afford increasing interest rates because if so they could not pay their debts back. Any way, it is a doom loop.

I heard that Japan got the same 'problem'.
If there was such a thing in my country I would make sure to turn all my money into either stocks or bitcoin.
I will not pay interest to own money.

I don't think this is very common...
I haven't heard of examples except Switzerland and Sweden, do you have more examples ?

Negative interest rates are common in developed market economy. This is real market, so negative interest rates are also everyday in a whole worldwide markets. 

I used extremely loose monetary policy as an example.  Less extreme figures would be more realistic, perhaps, but the idea is the same either way.

You forgot that I wrote "cashless".  Having no cash changes everything.

Inflation may be a capital killer in other countries, but that is no reason to have negative interest rates (no matter how low inflation is). It is best to reward savers with some real return (net of inflation). Negative interest rates punish savers.

Más:

9)  Lowering interest rates destroys capital!  Dr. Antal Fekete (look him up) writes that when interest rates go down, the "new borrower" has an advantage over the "old borrower" (those who borrowed before at higher rates).  The old borrowers are thus at a disadvantage in that they have a heavier debt burden than new borrowers.  And there are lots more old borrowers than new ones.  This destroys capital!

10)  If ZIRP and NIRP worked, Japan would be doing great after so many years of 0% rates.  Is Japan doing great?  Nope.



EDIT:  So many reasons...  That gives me plenty of material to write up a piece for my hometown paper, hah...

Right... anyway, it was said that Japan has an incredibly low inflation rate. In comparison to the US, it might be worth having that -0.1% with no inflation rather than in reality LOSING money but appearing to gain it. Remember, monetary values can decrease... but Japan is doing fine.

No inflation means that putting your money in a bank with a negative interest rate still gets you overall more money than if you were to deposit it in, let's say, the Bank of America. As previous people had already stated, this also helps to drive the economy. Don't reply without actually reading more deeply into the topic. It might be interesting to see about it. Who knows? You could learn something, instead of purely posting for a tiny amount money. Hypocritical? Sure, I'm in a signature campaign... but at least I take a few minutes (not much time, guys!) to think about what I'm posting.

Thanks.

Well a global negative interest rate is a kind of market failure, I don't think it is possible.
The world would have to be a very capital hostile place, so much that people would accept to pay so they can keep their money safe.

some affect is unstabilezed price and amount on market,but its not for long time,negative interest rate just happen on some area or exchange.

That is definitely true. There are situations when cash becomes worthless (due to hyperinflation). That is similar to a situation where cash is banned. Life definitely goes on, for beggars as well as everybody else.

I think the beggars situation is marginal, in a no-cash society people would simply trade (especially if they have an incentive to do it like the mandatory fees).
So instead of money the beggers would simply receive items (food for instance).

But I believe that even in a cashless society people would still manage to exchange an equivalent, even if it is not backed by the government. (like a kind of checks)

One more:

8:  If they ban cash, the homeless beggars would be cut to pieces if they could not panhandle in the streets or at the stoplights.

That actually would go for almost everyone who is not in a position to have a bank account.  Or anyone who IS poor, the fees would hurt them even worse than those with more wealth.  And the poor are far less likely to have Hard Assets as a defense vs. saving w/ negative rates.

Figures that TPTB are looking at screwing the poor yet again....

First, your assumption uses rates that are nowhere near reality. All CBs that have negative rates are between 0 and -1%, and at rates that low below zero, the banks are just going to eat the loss. No one is loaning money out at negative interest rates, and if rates went so negative that ever became a viable reality, the economy would be so jacked up that there likely wouldn't be any liquidity to make loans at all anyway, because the lending economy would be completely paralyzed with fear of moving money at all.

Second, if the bank is charging you -2% on the loan, that means they are paying you 2% to take out the loan. So it wouldn't matter if you had a legitimate reason to take the loan out, because you would make money for doing so, so you'd take the loan and park it in a mattress and be better off. But this is not a viable happenstance anyway because banks are not giving you interest to take out a loan, so the issue is moot.

Third, banks will continue to eat the loss because they have to be competitive. No bank can get consumers to agree to pay to deposit their money unless all banks were doing it and consumers had no choice. And even then, the consumers would have the choice not to deposit their money, and that eventuality would sap much-needed liquidity from the banks and threaten the banking system, so no CB is going to push rates so negative that passing on negative rates to consumers becomes a likely outcome.

Paying average people to take out loans is quite possible in a cashless world.  If the central bank is "giving" a rate of -8% to banks which deposit money with it, a bank can earn a profit by loaning out the money at -2% (i.e. losing 2% a year is better than losing 8% a year, for the bank.)

For you, it still doesn't make sense to accept the loan, unless you have a special reason.  If you have no compelling reason to borrow the money, the best you can do is to park it in the bank.  But the loan only pays you 2% a year, whereas the bank will charge you a likely 12% a year for that money.  So, the same principle applies as today: borrow only for special reasons.

In a cashless, negative interest world, the part of the math that matters is higher vs. lower (i.e. being less negative is higher.)  The higher-lower comparisons will remain the same.  Where the 0-mark is relative to the various rates, is irrelevant.

Just an elegant way for the elites to continue fleecing the public.

Where are these negative interest rates everybody is talking about?
I have not seen any at my local bank offering this proposed rates at negative percentage.

I ve been reading today interview with SNB president about negative interest rates,he told that it could be done just for shore time it could be very dengerous in long term,already caused some problems Looks like in March thay will change his policy

Negative interest rates don't just magically mean everything to do with banks operates like it's opposite day. Negative interest rates do not mean someone pays you to take out a loan. It only means banks pay the central bank for not making loans.

Yes, I really doubt they'll be paying people to borrow. Imagine if they did... anyone with half a brain would just max out their credit, withdraw the cash, and then rather than spending it they'd just keep it at home while being paid for holding it. All of this just encourages the hoarding of the cash and so that's why they must ban it.

I think Bitcoin is now becoming more popular and that is also good for the future. The world is now more becoming digital.
And I also hope that Bitcoin will have a great future and that many stores also accept Bitcoin.

While agreeing with everything you wrote about the diminishing utility of trying to force banks to make loans, I don't necessarily agree that this is a trial run for introducing negative interest rates to the public. The banks are already being charged negative interest, so if they thought they could pass it along without alienating customers, they would be doing so already. But consumers aren't going to tolerate banks charging them to hold their money, they're going to pull it out and stuff it in a mattress, further removing liquidity from the banks and the markets. The CBs know this is an obvious and likely scenario, so they're not going to push negative rates so far that they actually become a larger risk to the system than not. At least, that's how I see it.

Its a form of getting cheap money from the public lol.

And honestly we have no way around it, since most of the people already go for safe investments like bonds then an actual stock. People look for security so yeah.. lol.

 Negative interest rates encourage risky lending practices, which was the primary cause of the 2008 financial crisis. Banks won't care as much if they lose money on bad loans because they will lose even more if they don't loan the money at all.

Which is why banks are speaking out against NIRP; they get charged and consumer demand is still on life support. Banks were borrowing at 0% and getting paid to store their excess reserves with the government. But the crux is that there is very little appetite to borrow to the level needed for a consumption driven economy. There is no recovery. That tide has gone out.

So the CB NIRP is the trial balloon for introducing NIRP to the public; once we get 'used' to the idea and the world doesn't end, it's coming. And NIRP won't necessarily mean people begin to spend, an example being the report in Japan that sales of safes have skyrocketed, pre-empting the move.

The negative rates are only charged by the central bank to the banks, not to consumers (because the banks don't pass the negative rates on so as not to alienate customers). So the theory is by penalizing banks for holding money by charging them interest to do so, they are incentive to loan it out instead, thereby creating economic activity and spurring the economy.

This is literally the reason they have negative interest rates.

One implication of real NIRP (as opposed to today's "fake" NIRP) may be that gold, silver and Bitcoin will go up.

The way the elites have always made sure the system worked is that inflation must be higher than the return on "safe" fiat-based assets (short term govt. bonds, insured bank deposits, etc.), and that lower rate must be higher than the return on non-state-issued assets (gold, silver.)  Otherwise, investors would move en mass into the "wrong" assets (short-term Treasuries instead of stocks or real estate, gold instead of dollar-based assets, etc.) and the elites lose their power to profit by financial inflation.

(So you notice that gold's return is held at zero, via the gold standard, through most of the 400-year history of modern money.  It only goes up over short spans of time when the elites lose control temporarily.  During the "fiat" period it behaves more-or-less the same way.)

The problem today, for the elites, is that inflation is too low, and it's hard to make the other two rate go below zero (since people can always hoard cash, today, if their banks really give them negative interest.)  So the three rates are squeezed together around the 0 to 2% range.  People are accepting the small loss to inflation by keeping their savings in the safest assets, to avoid risking their money.

(And why shouldn't they?  Unlike the Great Depression, almost none of the debt overhang has been wiped off the books.  Investors are right to bet that the authorities will be afraid to print or borrow too much money to stimulate the economy, which would really burst the financial asset bubble.)

So, the idea is to push interest on "safe" fiat-based assets lower, below zero, so when people see their bank balances slowly evaporate (and presumably cash has been abolished, so they can't put it under the mattress,) they'll decide to spend and invest, and stimulate the economy.

(This is not the whole story, of course.  NIRP is not essentially different from centuries of the same kind of policies -- it's just that the elites hit a zero interest road block, below which they can't push interest rates, while there is cash.  These centuries of policies are what's really responsible for the current economic pain in the first place -- via propping up the values of financial assets with state power during stable times, and letting the pain fall on everyone when confidence collapses in some over-valued asset.  Only the elites really benefit from this system.)

But there's one thing not many commentators discuss -- the rate of return on non-state-based assets, ie gold, silver and Bitcoin.  Since this rate must be significantly below the "safe" rate for fiat-based assets, when the latter rate goes negative, the returns on gold, silver and Bitcoin must go even more negative for confidence in fiat money to be kept.  This may mean the elites must allow or engineer the prices of the non-state assets to go very high (again, over a short time span,) just so they will have enough power to suppress their rates of return over the period of NIRP to very negative values.  (The suppression of gold prices during the "fiat" era is well documented by two serious books -- in effect, the elites won't and can't leave the gold standard, whatever they say in public.)

Who will be ok in saving money with a negative profit that is mean i will give you my money and every month take some to your self it is noy logique

OROBTC,

Yes, many problems, but all just symptoms of the debt problem - there is too much debt, for governments and for the banking system. NIRP for excess bank reserves is just the trial balloon for mainstream implementation after they failed to stimulate demand via ZIRP / QE. The reason they fail is because the average Joe knows the economy still isn't right and they are scarred. There is no demand, it is the ultimate form of people power. Despite all the rhetoric for 7 plus years main street still won't rejoin the congo line. The debt life is done for this generation, much like the Depression begat a generation of frugal citizens.

So they can take savers money even more via NIRP, but it still won't spur demand. They can ban cash, make it all electronic but it won't help. People will just withdraw further, stash what they have and ride it out. And big companies and retirement funds will die a diminished returns death, anathema to the way the system is designed to operate. But when the money starts flowing from helicopters (the next move), then the game changes to inflation.

More...:

5)  Electrons in the bank could easily be seized should .gov want to...
6)  Credit card companies already skim some 3% per transaction, banning CA$H would mean they make even more money.
7)  We would pay to have "money" in the bank, but I doubt that they would pay us to borrow it...  Bigger save/borrow spread.

This idea doesn't work... so you take out credit, and you receive interest on the credit you take out? That doesnt' make any sense. Also it would mean when you deposit money to a bank your savings decrease... Which means that everyone would be trying to take out loans, and nobody would be offering loans. Which would not work at all.

I dont get this negative interest rates..Maybe the government/bank wants people to take their money from banks and invest directly somewhere or to start a business.This way it can help the economy and create jobs.

Honestly negative interest rates are bullshit (to put it bluntly). In other words it is fail of our current economic system.
Reducing interest rates is supposed to increase spending and investment, inducing economic growth.
The problem with this solution is - it won't work. All we achieve is temporary distraction from much needed reform.

Crazy.Last attempt  to keep that  dead  system alive Investors  see  that in very negative light
Nikkei went down 25%  from  time whan   negative interest rates has been introduced

I guess in the right environment negative interest rates are a good thing, but at the same time it just saps wealth out of the economy while slightly revaluing the currency.

I personally cannot attest to the actual effects of negative interest rates; it'll be interesting to see where it will go.

In switzerland they did it because too many foreigners were buying CHF during the crisis to secure their money. In this situation, negative interest rates are not too bad...
At least the national bank is winning some money on other people's greed 

there are already European countries that do this, like Switzerland, but it has never been tried before in Japan and the USA. I think it'll be a total disaster

Yes act absurd, because why would anyone want to borrow money with a negative return on assets,
when it can simply keep the money and there is no loss?

Negative interest rate has proven that it will increase the country's economy system. By using this kind of rate, the government are encouraging people to spend their money to make business instead of just keeping it in the bank therefore with more business around the country's economy will be increasing as well

It is a short-term measure. I don't think any country can have negative interest rates over a long term.
Beyond a point, the economy stops responding to monetary policy.

I have a whole slew of problems with ZIRP, and especially NIRP:

1)  Savers are very much hit under NIRP.  NIRP makes it harder for anyone saving money to get ANY income off their savings.  Bad!
2)  NIRP will very possibly (probably?) lead to banning CA$H!  .gov will then get to see EVERYTHING you buy.  Do you like that?
3)  ZIRP and NIRP (especially NIRP) cause all kinds of weird perversions (eg, incentive to pay bills faster)!
4)  Lack of proper CA$H will encourage OTHER digital currencies, Bitcoin may get discouraged or BANNED.

Those are just off the top of my head...

NIRP is very bad, to my knowledge we have not seen this before in modern history.

Maybe banks will build big forts to store money. 

It's just a matter of profitability, if building and keeping the fort functioning is cheaper than the interest rates they could do it. 

Well it's sort of case to case basis according to the country of origin. If there's is a deflation then the harm is lesser than what it looks but if there's inflation going on and they decide to go with negative interest rates, then the effect would be instant and both short and long term users/investors will surely face some harm but mostly the short term since the long term investors get to adopt to the changes in the long run and are affected less.

http://www.bloombergview.com/quicktake/negative-interest-rates

Are Negative Interest Rates an end of fiat monetarism? What effects do you believe this monetary gamble causes in short- mid- or longterm?

Lets's discuss.