Negative Rates

[jazz]

Hopefully Errol or Austrian can chime in.

In negative rates, you pay the bank to hold savings, sort of like a safety deposit box, they pay you to take out a loan and you can earn a small return that way. The CBs are still backing this new paradigm.

Who then is responsible for the national debt which has been basically created out of money printing by the CB? Is the CB now servicing its own debt?

[Austrian Economics]

Hopefully Errol or Austrian can chime in.

In negative rates, you pay the bank to hold savings, sort of like a safety deposit box, they pay you to take out a loan and you can earn a small return that way. The CBs are still backing this new paradigm.

Who then is responsible for the national debt which has been basically created out of money printing by the CB? Is the CB now servicing its own debt?

You are right. In Switzerland for the past few years large commercial depositors pay for the privilege of putting money on deposit. Eventually, this will come to Canada and even small retail depositors will get negative interest on chequing deposits.

Just think of the possibilities. If your farm is losing money at a rate of 1% per year, but you are able to borrow money at negative 2%, you will actually get a profit of 1%. Your creditors will subsidize your losses. But this can't go on for years. The capital of your creditor shrinks a bit each year instead of growing. Eventually the economy runs out of capital completely.

It won't be long before the central banks in Canada and the U.S. openly buy government bonds. Japan has been doing this for years. Then they will openly buy ETFs, and eventually stocks. The Japanese central bank now owns around 80% of the ETFs over there.

[Marusko]

So instead of the banks lending you money so you can buy land and charging you for it, they're storing the 'value' of their cash in your land and paying you for taking the risk.

Correct me if I'm wrong but as scary as 'negative interest rates' sounds, someone in debt is not taking the full brunt of deflation if they are receiving interest on the debt they owe. A good thing for a lot of asset-heavy farmers. Does that make sense? I'm still wrapping my head around it.

Maybe negative interest rates will become part of the new norm - occasional ups and downs instead of the unsustainable upward curve we've been experiencing. we've chased interest rates down to zero, mathematically it makes sense to keep going.

Not sure how I feel about the central banks buying up the markets. If capitalism has failed that badly, why don't we just nationalize everything then. Crown corps all around. OK maybe not everything. I want to keep my farm.

[ajl]

Their is a 100% chance of negative rates on the savings side but I don't think the the borrowing side will get negative. The demand for borrowed dollars is going to be so huge in order to keep the zombie economy moving that the long end of rates will be positive. Bank will need larger spreads to keep from failing and risk will rise considerably. That one thing that got farmers in trouble in the 80's. Their risk went up as prices came down and as a result larger spreads were needed. One of the evidences of this is that Home Capital Group's GIC rates have gone up not down. They are anticipating a rush of borrowing demand by riskier borrowers thus the higher rates.

[Austrian Economics]

Their is a 100% chance of negative rates on the savings side but I don't think the the borrowing side will get negative. The demand for borrowed dollars is going to be so huge in order to keep the zombie economy moving that the long end of rates will be positive. Bank will need larger spreads to keep from failing and risk will rise considerably. That one thing that got farmers in trouble in the 80's. Their risk went up as prices came down and as a result larger spreads were needed. One of the evidences of this is that Home Capital Group's GIC rates have gone up not down. They are anticipating a rush of borrowing demand by riskier borrowers thus the higher rates.

You can get a negative interest rate mortgage in Denmark right now. To be fair, with some added charges the rate is slightly positive. But borrowing at negative rates is indeed possible. You're seeing higher rates for some borrowers due to default risk. Flushing out the defaults will take time, if the government actually allows it.

[Austrian Economics]

So instead of the banks lending you money so you can buy land and charging you for it, they're storing the 'value' of their cash in your land and paying you for taking the risk.

Correct me if I'm wrong but as scary as 'negative interest rates' sounds, someone in debt is not taking the full brunt of deflation if they are receiving interest on the debt they owe. A good thing for a lot of asset-heavy farmers. Does that make sense? I'm still wrapping my head around it.

Maybe negative interest rates will become part of the new norm - occasional ups and downs instead of the unsustainable upward curve we've been experiencing. we've chased interest rates down to zero, mathematically it makes sense to keep going.

Not sure how I feel about the central banks buying up the markets. If capitalism has failed that badly, why don't we just nationalize everything then. Crown corps all around. OK maybe not everything. I want to keep my farm.

Whatever economic system we currently have now, it cannot be described as capitalism. Nationalize everything? The problems caused by the significant Sovietization of the economy that we currently put up with with will not be resolved by complete Sovietization. That did not work out for the Soviet Union as I recall.

Negative rates as the new norm mean rampant capital consumption on money-losing boondoggles. If that's the option we pick, then complete economic collapse will be the norm. If you don't have forty acres and a mule, you starve.

[errolanderson]

The Fed is both the arsonist and the fireman. But this fire is now totally out-of-control. Each U.S. market crisis just gets bigger and bigger. No learning from the past . . . Feed me now to play another day is all that matters. But now is does matter, big-time . . . .

Negative rates to savers goes across the purest principals and foundations of capitalism. The greedy get rewarded by bailouts and unfettered money printing at apparently no cost. Savers and the grassroots of an economy get punished.

This failed Keynesian policy is now all unravelling before our eyes. For the Fed suggesting on 60 minutes that they still have the big guns hidden in the closet, is an insult. It’s all about protecting the ass of the American rich.

Negative rates just goes to show how low central bankers will go to protect Wall Street at any cost.

[ajl]

The Fed is both the arsonist and the fireman. But this fire is now totally out-of-control. Each U.S. market crisis just gets bigger and bigger. No learning from the past . . . Feed me now to play another day is all that matters. But now is does matter, big-time . . . .

Negative rates to savers goes across the purest principals and foundations of capitalism. The greedy get rewarded by bailouts and unfettered money printing at apparently no cost. Savers and the grassroots of an economy get punished.

This failed Keynesian policy is now all unravelling before our eyes. For the Fed suggesting on 60 minutes that they still have the big guns hidden in the closet, is an insult. It’s all about protecting the ass of the American rich.

Negative rates just goes to show how low central bankers will go to protect Wall Street at any cost.

All the rage in Europe I've heard. Is the latest print the last round from the Central Banks and the ammo dump is finally empty?

[macdon02]

[Guest]

can still get 2.5-3 % here right now on savings

[errolanderson]

One (1) month and three (3) month U.S. treasury yields have gone negative this morning . . . the 1st time in history.

[Rareearth]

Govt should be more broad in the aid for people and business vs picking those to who can live and other that can die.

For example :
-some one earlier pointed out gst that’s perfect - everyone fair
-Interest rates, drop them so we can compete with other nations (USA .25, Europe -.75, etc)Canada prime +.75
-Drop CDN dollar


Carbon tax is disproportionately crippling to many industrial, and export commodity sectors that creat jobs and economic activity.

Right now it is all about vote buying and the next election, buying individual votes at what true cost to the country and economy?

[Austrian Economics]

Govt should be more broad in the aid for people and business vs picking those to who can live and other that can die.

For example :
-some one earlier pointed out gst that’s perfect - everyone fair
-Interest rates, drop them so we can compete with other nations (USA .25, Europe -.75, etc)Canada prime +.75
-Drop CDN dollar


Carbon tax is disproportionately crippling to many industrial, and export commodity sectors that creat jobs and economic activity.

Right now it is all about vote buying and the next election, buying individual votes at what true cost to the country and economy?

Every drop in the rate of interest below what a free credit market would tolerate (and no free credit market would anywhere near zero) is destroying capital. We are literally consuming the seed corn. Once
we go full bore below zero that consumption will accelerate dramatically. It's no different than a farm that burned all the seed corn, or handed it all out to the employees to be eaten. You would have nothing to plant next year's crop.

[Austrian Economics]

One (1) month and three (3) month U.S. treasury yields have gone negative this morning . . . the 1st time in history.

Your quip about the Fed being both arsonist and fireman is very appropriate. Given the constraints that fiat currencies impose, (as debt balloons creditors need relief via perpetually falling rates) the Fed has no choice but to follow along and let the overnight rate go negative too. They may boast about being able to buck that trend, but in reality they are powerless to stop it.

[Rareearth]

If interest rates do go negative?

What will happen,
-Gov prints more money, ( they should be spending it on infrastructure, building and stimulating economy vs feeding the entitlement)
- This will fuel inflation
- Govt will increase taxation
- trouble for exporters as every county imposes tariffs to support their own economy
Etc