Posted on 04/15/2016 1:15:40 PM PDT by Lorianne
Central bankers around the world are pushing deeper into the once-unthinkable world of negative interest rates — essentially charging customers to hold their cash. Denmark set negative interest rates as early as 2012, followed by the ECB in 2014. Since then, they’ve been joined by Switzerland and Sweden. In Asia, the Bank of Japan announced a negative interest rate policy in January this year. Hungary became the first emerging market to experiment with negative rates, taking the plunge in March. With more of the world’s central banks joining in, and rates pushing further below zero,
In Denmark: Some mortgage holders are the envy of home owners around the world. With negative interest rates, they’re actually receiving interest payments from the banks they initially borrowed from.
In Switzerland: Few banks are dealing with negative interest rates by passing them on to their customers, but Alternative Bank Schweiz in Switzerland is bucking the trend, and charging clients to hold their deposits.
In Germany: Life insurance companies with long term liabilities are feeling the squeeze of negative interest rates. Some groups require an annual yield of more than 5% to sustain their businesses, driving a typically low risk industry into increasingly risky assets.
In Japan: The announcement of negative interest rates spurred a massive rise in prices on the government’s 40 year bond, gains only usually seen on bonds in emerging markets like Venezuela. But even in Japanese government bonds, investors are taking on a new risk: duration. Money market trading is also withering in Japan, as the new interest rates set into place. The trading confirmation system used by domestic banks wasn’t fully updated until a month after the Bank of Japan’s rate cut.
(Excerpt) Read more at wsj.com ...
And for monetary policy: What comes after negative rates? Helicopter money is one answer, according to James Mackintosh, as perverse effects of negative rate policies begin to crop up. Around the world, it looks like negative interest rates are here to stay. And like it or not, so are their effects.
Well, see, this guy is gonna help me sneak $100 bills out of a foreign country. I just gotta give him some cash to buy the super-expensive liquid to wash them. He even gave me a couple $100 bills to spend.
Oh, sorry. Here I thought I was Chelsea Clinton’s father-in-law.
Central bankers around the world are pushing deeper into the once-unthinkable world of negative interest rates — essentially charging customers to hold their cash.
Can I ask a stupid question? Isn’t a negative interest rate the same thing as a bank service charge, on a bank account? And if these negative rates get too high, won’t people simply pull cash out of the bank? If a bank is not paying any interest at all, and you have excess cash, you actually come out ahead holding currency in a safe at your house. Maybe I’m missing something?
People initially were willing to pay protection money for their money because the bank protected it from theft.
Today, though, that shouldn’t be necessary.
How about a ‘cash for clunkers’ program?
They won’t let you take it out. They’ll pass regs preventing runs on the bank. Or, they will eventually simply go to a totally cashless society, which is what many of them want now.
I’ll take a $1 billion loan please!
Unless they hit you for fees upon direct deposit. Then, they already got you before you can withdraw it.
Or, all cash is outlawed and you can only use your credit card, debit card, pay-by-phone or three little numbers that are >5 but <7.
You are wise
Because of two (at least) things. One is that cash is not readily deployed. If I have funding in my stock account, I can buy thousands of shares of stock (for example) with a mouse click or two. If I saw a stock at what I considered an attractive price, I could buy it and get the funding to my broker within T+3 days per SEC regs. But how would I do that? 200 shs of a $50 stock is already at the $10K reporting threshold for “suspicious activity” where a bank is required by law to report the transaction.
The other is that cash in large amounts has for a long time been regarded as a form of contraband. Why do you have it? Where did you get it? Why didn’t you just get a check when it came into your hands? Why isn’t is safe in a bank? You could get robbed. You could also have the money seized by authorities looking to make your life miserable and feed their coffee fund.
Negative interest rates would goose the stock market and produce what we are seeing in the bond market. People. especially Europeans, are buying bonds hand over fist because of record low rates and because THEY have already had this insane policy imposed on them. Very very bullish for equity prices. This gets going here and the stock market would just sky.
I’d like to borrow $10 billion, please.
I’ll believe it when IRS sends refunds for late payments. Banks can’t make money paying you to borrow money.
Thank you. I started out in banking I/T. Several years of it. It could have been implemented long ago in various forms.
Fast Pass could have done it, to a degree.
https://www.youtube.com/watch?v=eob532iEpqk
BTW, I worked with and at one time did the custom code for the (earlier) versions of the printers that will do the custom packages of meat he stuffs in his pockets.
“Can I ask a stupid question? Isn’t a negative interest rate the same thing as a bank service charge, on a bank account? And if these negative rates get too high, won’t people simply pull cash out of the bank? If a bank is not paying any interest at all, and you have excess cash, you actually come out ahead holding currency in a safe at your house. Maybe I’m missing something?
“
There is a lot at play here. Companies can’t take their money out of the bank. Verizon, for example, might have, say two-hundred million dollars on average on any given day. Where would they put the money that would satisfy all the regulatory and legal rules they must play by? Individuals could take their money out as cash, but where would they put it? If everybody bought a safe you can bet that there would by a huge upswing in kidnappings and break-ins. The bulk of most people’s money is in investments in 401k’s and Roths. They can’t take it out of the bank. There is 15 trillion dollars in those accounts that the Democrats have been trying to nationalize since Clinton (Billy) was in office. The plan then was scotched by a Republican majority, but the person who developed the plan has an office down the hall from Obama.
Another place you might consider putting money is a safe deposit box. But states regularly take the money and spend it using rules like, if no one has been in the box in a year, even if it is paid for, the box is considered abandoned and the contents forfeited.
There are things you can do to protect your money. You could move your actual cash to investment accounts that you manage. I haven’t seen this being affected yet. If you have the money tied up in stocks and bonds how would they take it with negative interest rates? Also, you can bet that Congress will develop a mechanism so they don’t lose their money. But, most likely, you’ll need a lot to play. For an example of this, look at trusts. It costs thousands of dollars a year to put your money in a tax sheltered trust when you die so the money actually goes to your heirs rather than for taxes. Most ordinary people can’t afford the overhead. But people like the Kennedy’s will be rich for hundreds of years into the future. Whereas without the trust the money would have gone for taxes in just two or three generations.
Reality should be accepted as it is but on this thread everyone seems to think that 5% interest is somehow sacred and wonderful and that -1% interest is satanic. Money is money and in the free market people are well, free to buy and sell as agreed. The way adults see interest rates is they consider what market rate other money's being loaned at, and then they also look at inflation.
Markets: if I'm shopping for a loan and one bank charges five percent and the next bank offers to pay me five percent, then I'll borrow money from the second bank. If some clown refuses to borrow at the negative rate because it's ah, "bad", then he's an idiot.
Inflation. If we got 10% inflation and some bank offers to pay me 5% interest, I'll tell 'em to take a hike and I'll go buy gold. Same thing if we got deflation, I'll be happy to pay people 5% to borrow my money if they were in some foreign country w/ 10% deflation, because when they pay me back I'd pocket a lovely dollar profit.
What's bad isn't the interest, it's the deflation but that's for a different thread.
If a bank run occurs, my thought is the doors will be locked and no one will be able to get to their safety deposit box.
Game, set and nearly, match.
” Money is money and in the free market people are well, free to buy and sell as agreed.”
True up until the time that the government requires you to keep your money in a bank, where they can be properly eroded for the public good.
lol
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