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posted by martyb on Wednesday July 27 2016, @06:41PM   Printer-friendly
from the go-long-on-mattresses dept.

The RBS banking group has warned 1.3 million customers they could be charged negative interest rates if the Bank of England cuts base rates below zero.

The group, which includes NatWest, wrote to its business and commercial account holders about the potential changes, which mean they could lose money even when they are in credit.

The letter said: "Global interest rates remain at very low levels and in some markets are currently negative.

"Dependent on future market conditions, this could result in us charging on credit balances."

The Bank of England's base rate currently stands at the historically low rate of 0.5%, where it has been for more than seven years - and some economists believe it should be cut further to stimulate the economy.

Source: Sky News

From October 1st, the Dutch bank [ABN Amro] is adjusting its conditions to state that the bank can give negative interest rates to account holders with a business checking or -savings account, ANP reports.

Source: NL Times


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  • (Score: 3, Informative) by fritsd on Wednesday July 27 2016, @09:13PM

    by fritsd (4586) on Wednesday July 27 2016, @09:13PM (#380893) Journal

    I am an dumbass w.r.t. economics, so take the following with a grain of salt, but I thought the reasoning was as follows:

    People who studied the "science" (ha!) of Economics, claim that money only does work for society if it *flows*.

    Europe is still hurting a *lot* from the 2008 crisis. You know, those dodgy American mortgages that Goldman Sachs and JP Morgan re-packaged as highly trustworthy AAAAAA grade municipal investment products advertised by "your" bank.

    For instance the (really) far north community of Narvik [wikipedia.org] in Norway was well and truly shafted when they had tax money *left over* and searched for a *safe* temporary investment:

    https://www.theguardian.com/business/2008/jun/30/subprimecrisis.creditcrunch [theguardian.com]
    (2008-06-30, English, interesting but seriously chilling article btw; I think that, because you don't see people screaming with pitchforks on the streets of Europe, the extent of the damage to our EU societies is not really visible except for police, psychologist, and social worker statistics. People used to *trust* their banks, that's what banks are *for*)

    http://www.attac.de/kampagnen/finanzmarktkrise/subprime-krise/ (German) [attac.de]

    Risiko gestreut – weiter als gedacht

    Die Krise zeigte sich auch an solch unwahrscheinlichen Orten wie Narvik in Norwegen und Düsseldorf, dem Sitz der staatseigenen IKB Deutsche Industriebank. Die guten Renditen der Subprime- Hypotheken lockten die Bürgermeisterin des hoch im Norden liegenden Städtchens genauso wie die Vorstände der IBK. Resistent gegenüber den Lehren vergangener Fehlspekulationen (z.B. der hessischen Landesbank HELABA in den 1970er Jahren) und im Widerspruch zu ihren eigentlichen Aufgaben, erlag manche öffentliche Bank Deutschlands den Verlockungen des schnellen Geldes.

    So. The European banks were hurt a lot. The other types of European investors, such as communities with tax money left over, were hurt a lot. So what did they do?

    Withdraw from the market, play it safe, sit tight on the money, the country is in crisis, things are going a lot worse, etc. etc.

    This however led the ECB to complain that the (Eurozone) banks didn't do anymore what their purpose in society was: lend out money at risk to small budding companies so those could grow the economy after the crash.

    So somebody (Draghi?) had the luminous idea: "listen up you fuckers, if you keep hiding under our skirt (=use ECB Deposit Facility) instead of earning money with entrepreneurs in your provinces, then we might as well make you *PAY* for it!" (I paraphrase. I wonder what he said in the original Italian, a quite colorful language)
    And so in 2014 he set the EURIBOR rate [wikipedia.org] to below zero.

    Hey, I actually found an informative article there! 2014-09-09 Benoît Cœré - Life below zero: Learning about negative interest rates [europa.eu]

    So now the banks, who don't want to lose money on your deposits, have stopped hiding their money in the safe ECB and instead are lending it out again, so that it flows into the economy.

    Um.

    Oh wait.. that's not true.. now the fuckers have decided to pass on that cost to their consumers. Oh well.

    See it as an advertisement: "well dear customer, *we* charge you money to hold on to your money so that we have a fraction of real money underpinning all the dodgy loans in our bank, but if you want to make interest, we suggest you withdraw all your money from our bank, and take it to the bank across the street which will happily still pay you interest."

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  • (Score: 3, Informative) by jmorris on Wednesday July 27 2016, @09:40PM

    by jmorris (4844) on Wednesday July 27 2016, @09:40PM (#380902)

    People who studied the "science" (ha!) of Economics, claim that money only does work for society if it *flows*.

    It is a concept called the "Velocity of Money" and it really is a thing. I had trouble truly groking the idea, but the explanation Marx gives in Vol I of Capital is the one were it finally made sense for me. Once you understand it the idea is really kinda self evident and ya wonder how anyone misses it. It isn't so much that it only works if flowing, but the speed it circulates does matter.

    • (Score: 1) by fritsd on Wednesday July 27 2016, @10:26PM

      by fritsd (4586) on Wednesday July 27 2016, @10:26PM (#380920) Journal

      Sorry jmorris, I fell asleep when I tried to read Das Kapital :-(

    • (Score: 0) by Anonymous Coward on Thursday July 28 2016, @01:06AM

      by Anonymous Coward on Thursday July 28 2016, @01:06AM (#380967)

      Because the faster two people pass a dollar bill back and forth is really important? Well, maybe if they hit relativistic velocities...

      • (Score: 0) by Anonymous Coward on Thursday July 28 2016, @02:04AM

        by Anonymous Coward on Thursday July 28 2016, @02:04AM (#380994)

        Yes, if one of those people is borrowing that dollar from the other and investing it and paying wages and growing a business and then paying back a dollar of debt to the first person. Everybody wins.

        The whole point is to use the money to do something useful. The faster and more that that dollar circulates the better the chance something useful will be done with it.

      • (Score: 0) by Anonymous Coward on Thursday July 28 2016, @06:44AM

        by Anonymous Coward on Thursday July 28 2016, @06:44AM (#381081)

        Not directly back and forth, but as long as the members of the velocity thread are adding value, yes money velocity matters. Consider a simple thread of dairy farmer, cheesemaker, and cheese eater. The faster the cheesemaker sells the cheese, the sooner he can buy more milk, the sooner the farmer can expand his herd, the sooner the farmer can supply more milk, the sooner the cheesemaker makes more cheese, the sooner the cheese eater has more cheese to buy. This thread becomes part of a bigger web when we start adding hay farmers, cheese cloth makers, etc.

        Where velocity doesn't matter is when you start including rent seeking middle men who only add themselves to the thread, no additional value. For example, if a middleman knows that there's new cheese before the cheese eater and is also aware of how hungry the cheese eater is then acts on this knowledge by buying the cheese from the maker then selling to the eater and pocketing the profit, that adds no net value to the thread, just weakens the other threads in the web especially when in order to pull that off the middleman needs to already have more money than can be spent in 2 lifetimes. IOW, a plane flying from Madison to Detroit to St. Louis might have a 10% higher air velocity than one flying directly from Madison to St. Louis, but those of us who understand reality would realize the direct flight is going to be more valuable, productive, etc.

        So as long as the velocity vector is only considering transactions between producers and consumers, money velocity matters. When considering rent seeker transactions, those transactions should have a negative velocity.

      • (Score: 2) by TheRaven on Thursday July 28 2016, @12:53PM

        by TheRaven (270) on Thursday July 28 2016, @12:53PM (#381157) Journal
        If you're just passing the dollar back and forwards, no that's no use at all. Part of the problem with the current economic system is that we have a lot of people employed doing precisely that. In the rest of the economy, I'll only pass you a dollar if you give me something of value and you'll only pass me a dollar if I give you something of value. More importantly, I'll only give you a dollar if you give me something that I think is worth more than a dollar and that you think is worth less than a dollar and you'll only give it back if I give you something that you think is worth more than a dollar and I think is worth less than a dollar. If we pass a dollar back and forward then the other bit of the transaction means that you'll end up with something you think is worth more than the thing that you started with and I'll end up with something that I think is worth more than the thing that I started with.

        If you and I both have some skill that the other lacks, then after exchanging a few dollars in both directions we will both have some of the product of the other's skill which, in combination with our own skill, is more valuable than just having the output of our own ability. The economy is now in a more healthy state, because we've both exchanged something that we had more than we needed of for something that we needed and are both better off as a result.

        Now, at this point, you might wonder why we'd pass the dollar back and forwards at all, why not just barter? The answer to that is that most real economies have more than two participants. I might not want the thing that you're selling, but if you want the thing that I'm selling and someone wants the thing that I'm selling then we can use some counters to keep track of the debt. Let's say I'm selling eggs and you're selling corn. I want to buy some corn from you, but you're a vegan so have no use for eggs. Instead of giving you the thing I want to sell, I give you a counter that says 'I owe you something of equal value to the thing that I've given you'. You accept this IOU because there is some guarantee that you can exchange it for something else. Older currencies were backed by banks keeping an equal value of some precious metal in a vault (Pounds Sterling were tokens allowing you to claim a pound of sterling silver, for example). This didn't work so well because the number of trades that people wanted to make and needed money for are proportional to the value of the economy, not relative to the amount of a particular commodity (and especially not relative to the amount of a particular commodity in a particular cupboard). Modern currencies are backed by the guarantee that, even if no one else wants to buy them, the issuing government will accept them in payment for taxes. If we're both in the USA, then at the end of the year we'll need to pay some taxes and so we both need some dollars. The same holds for everyone else in the USA, so we can both be confident that we'll be able to exchange dollars for something that's actually useful.

        --
        sudo mod me up
    • (Score: 1) by mystik on Thursday July 28 2016, @02:51AM

      by mystik (3627) on Thursday July 28 2016, @02:51AM (#381014)

      This little parable is what nailed "Velocity of Money" for me

      http://economyblog.ncpa.org/the-tale-of-the-100-bill/ [ncpa.org]

      --
      Why aren't you encrypting your mail?
      • (Score: 2) by jmorris on Thursday July 28 2016, @03:44AM

        by jmorris (4844) on Thursday July 28 2016, @03:44AM (#381040)

        That is actually a bad example. The fallacy embedded is ignoring the fact the hotel owner is simply a lucky thief. We must assume he lacked the cash to discharge his debt to the grocer without the deposit and the parable breaks down if we assume he knew the hooker would end up with in time to save him from the police. And if everyone realized who owed who they could have deleveraged their debts without the temporary cash injection.

        Instead let us use the parable as a basis for a better example. Assume the room rented and the hotel owner rightfully took possession of the $100 bill. If the rest of the story unfolds as told that is a very fast velocity of money. If instead the hotel owner waits until the end of the day and drops by the grocer's, who deposits it with the rest of the day's take and writes a check to his supplier, etc. The speed of that $100 into the local economy is a lot slower. Now if we assume that the supplier is out of town the $100 leaves town almost as quickly as it came in. Or assume the grocer saves the $100 toward a vacation later in the year. Much slower velocity of the money.

        • (Score: 0) by Anonymous Coward on Thursday July 28 2016, @09:16AM

          by Anonymous Coward on Thursday July 28 2016, @09:16AM (#381114)

          In my world, there would have been a hand out for taxes at each step.

  • (Score: 3, Insightful) by fritsd on Wednesday July 27 2016, @10:17PM

    by fritsd (4586) on Wednesday July 27 2016, @10:17PM (#380917) Journal

    I'm on a roll, so I'm going to continue my rant a little bit:

    I called Economics a "science" for the following reason:
    Science means that the underpinnings of the field of study have not been falsified yet, have been shown to be true and correspondent to reality (so far; of course in the future the ground rules of any science can change as new discoveries are made).

    I never studied Economics, not even in school, but I believe from reading Internet rantings on Zerohedge etc. the following 2 "axiomas" are used in Economics:

    (1) The standard model of an economic actor is an entity that has (1a) sufficient information, and (1b) acts rationally to their best perceived benefit, as an entity that buys or sells stuff.

    (2a) Economic growth is something that is desirable, and Economic models are made such that they model and predict this economic growth.

    (2b) If, according an Economic model, continuous economic growth is possible, then this model growth approximates economic growth in the real-life economy. In other words: there will be real-life economic growth if the real economy resembles the desired model.

    Ad (2) there is a completely beautiful refutation of the growth on the TheOilDrum blog, which I can't find just now. Let's just summarize with R. Buckminster Fuller that we've got just the one "Spaceship Earth". Draw an exponential function one day.
    If we convert the mass of the planet's crust to human meat, it won't take very long.

    Ad (1) this is how George Soros [wikipedia.org] became so filthy rich. I read a book of him. Other people modeled reality on economic models, based on their belief system, theoretical background, gut feeling etc.
    He didn't; he modeled reality on his belief of the belief system of *the other investors*. He didn't think like "what's the economy going to do?", but like: "what are the other people on the stock market floor going to do? when is there going to be a panic? what things are "too big to fail"? when do they seem surprised? "

    The German article I refered to in rant #1 used the word "Risikostreuung", is that "diversification of risks" in English?? It sounds like "the solution to pollution is dilution": just make everyone a little radioactive, then the nuke plant owners don't have to build an expensive storage facility.

    These two paragraphs are *SERIOUSLY DAMNING*: one from the German article, the other one from the Guardian article about Narvik:

    "Entsprechend lax fiel auch die Aufsicht über das Hypothekengeschäft aus, zumal die Innovationen auf den Finanzmärkten so komplex wurden, dass die Aufsichtsbehörden praktisch auf eigene Risikoanalysen verzichtet haben (zumal sie aufgrund des Lohnniveaus im öffentlichen Dienst die entsprechenden Experten nicht halten konnten) und stattdessen den Analysen der Risikonehmer vertrauten.
    "

    "Kleven also reckons that the local politicians did not have the required technical expertise. "Citigroup said these products should be for sophisticated investors only. The municipalities were definitely not sophisticated investors … It's the old rule: you shall not buy a financial product that you do not understand."
    "

    This completely undermines "axioma" (1). Now I know I'm not really "money-smart", but I'm convinced that there are only very few people in the world that understand all the nuances of packaged Californian sub-prime morgage naked Credit-Default-Swaps [wikipedia.org]. And a lot of suckers who trust "their" bank manager's words "it's a real good product, I don't understand it myself, but my golf buddies think it's excellent value for money, and much better ROI than a savings account!"

    I don't know if there are economic models that incorporate the variable known as "trust" [wikipedia.org].
    But the Narvik community is going to save tax money for an extra 10-20 years now before they can rebuild their school. And this is because they didn't act as "rational actors", and tried to shaft some other ignoramus with their sub-prime CDS hot potatoes. Instead, they absorbed the damage, because they act as a shield to actual people living there. It's the non-economic variable of "duty", of "solidarity".

    Europe has absorbed a massive amount of damage. I truly believe it is this that increased the growth of Beppe Grillo's Movimento Cinque Stelle [wikipedia.org] political party.

    Many people in the EU will be very happy when the neo-liberal UK finally buggers off to become the USA's umpteenth state, loses its veto, and leaves the rest to FINALLY restructure the EU financial system with some serious banking oversight.
    That's because we're kind, and nice, and don't like the smell and health hazard of bankers and their politicians swinging from lantern-posts.

    Pity I'm too stupid & bad in Italian to follow the following article by M.5.S, about the Monte dei Pasci di Siena bank which is teetering this week:
    http://selezione5stelle.com/il-salvataggio-di-monte-dei-paschi-di-siena-passa-per-la-nazionalizzazione/ [selezione5stelle.com]

    Heh that feels better. Sorry that you had to read it..

    tl;dr version: we need 21st century banks that function in reality.

    • (Score: 3, Insightful) by migz on Thursday July 28 2016, @07:00AM

      by migz (1807) on Thursday July 28 2016, @07:00AM (#381086)

      If you want to understand more about the axioms of Economics then I suggest you read Human Action by von Mises, this is a good epistemological treatment of the subject. It's not mainstream but tt does address the status quo and it's faults.

      Download the pdf / order a dead tree version from below, probably available in German as this is the Austrian School of Economics.

      https://mises.org/library/books [mises.org]

  • (Score: 1) by khallow on Thursday July 28 2016, @03:32AM

    by khallow (3766) Subscriber Badge on Thursday July 28 2016, @03:32AM (#381036) Journal

    People who studied the "science" (ha!) of Economics, claim that money only does work for society if it *flows*.

    What is the point of money again? As people routinely note, you can't eat it and it's a lousy material for building stuff out of (especially when it's all electronic ones and zeros). You know, maybe the people who study the "science" of economics have got this.