Posted on 12/16/2015 11:06:23 AM PST by Zeneta
Doesn’t make sense to me. In a negative rate environment, you would owe LESS than the principle after a given length of time, right?
There are some mental gymnastics that are needed to grasp this.
First of all, nobody is going to lend you $100 today with the promise that you will pay them $90 tomorrow.
You need to think about the future value of money.
If you can borrow at 1%, locked in for a long term, and as rates go higher subsequent to that, your cost of funds are substantially lower and, in effect, you could re-lend that money for pure profit.
“First of all, nobody is going to lend you $100 today with the promise that you will pay them $90 tomorrow.”
Didn’t Switzerland recently started paying a negative interest rate to depositors and still had many takers because they believed they would lose less money than with other investments?
Yes, and Japan has been in this trap for over 20 years.
They, the bankers have lowered rates to zero or negative in order to get people to spend their money, but it has had the opposite effect.
It’s more about confidence in the future.
We are so screwed.
Can I get about tree fiddy.
If you listen to the song from the perspective of a banker as opposed to a thug, it may make more sense to you.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.