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posted by janrinok on Saturday February 07 2015, @03:57AM   Printer-friendly [Skip to comment(s)]
from the keep-it-under-the-mattress dept.

Matthew Yglesias writes at Vox that something really weird that economists thought was impossible is happening now in Europe where interest rates have gone negative on a range of debt — mostly government bonds from countries like Denmark, Switzerland, and Germany but also corporate bonds from Nestlé and, briefly, Shell. As in you give the owner of a Nestlé bond 100 euros, and four years later Nestlé gives you back less than that. "In the most literal sense, negative interest rates are a simple case of supply and demand. A bond is a kind of tradable loan," says Yglesias. "If there isn't much demand for buying the bonds, the interest rate has to go up to make customers more willing to buy. If there's a lot of demand, the interest rate will fall."

But why would you want to buy a negative interest rate loan? The question itself seems absurd – the very idea that anyone should have to pay someone to keep their money safe rather than demand an interest payment for the use of their money is counter-intuitive. But according to Yglesias, very rich people and big companies need to do something with their money and most European banks only guarantee 100,000 euros.Plowing the money into negative-yielding government bonds can appeal to banks when the alternative is to pay even more to store cash on deposit. J.P. Morgan calculates there is currently 220 billion euros of bank reserves subject to negative interest rates, which looks set to grow exponentially because of the European Central Bank’s forthcoming colossal bond-buying program. "It may be the case that if governments push the negative interest rates thing too far the entire economy would become a cash based system," says Merryn Somerset Webb. "But that might take a while to get to."

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Why is Deflation so Worrying? 81 comments

Some time ago we discussed negative interest rates here on Soylent News. At that time there was some discussion of deflation and why it is such a mixed bag for consumers, companies, and countries.

The Economist has an article that explains deflation rather succinctly.

It turns out that deflation is bad because we are all so burdened with Debt. Not only personal debt, but corporate debt, and national debts. You end up paying debts with money that is more and more dear as time goes on.

Deflation poses several risks, some well-understood, one not. One familiar danger is that consumers will put off spending in the expectation that things will get even cheaper, further muting demand. Likewise, if prices fall across an economy but wages do not, then firms’ margins will be squeezed and employment will stagnate or decline. (Neither of these dangers is yet visible; indeed, America and Britain are seeing strong employment growth.) A third, well-known risk is debt deflation: debts become more onerous because the amount that is owed does not fall, even as earnings do. This is a big worry in the euro zone, where many banks are already stuffed with dud loans.

But in addition, all tools of Monetary Policy become useless.

The least-understood danger is also the most serious, because it is already here. Deflation makes it harder to loosen monetary policy. All of which means that policymakers risk having precious little room for manoeuvre when the next recession hits.

While some have been eager to see monetary policy reigned in, we did see the effects of this during the height of the recent depression, (which some claim we are still suffering from).

The US Federal Reserve had run out points it could cut when lending money to large banks. There were periods in 2010 where the Fed was lending money to banks at Zero Interest Rate. The link explains a number of serious risks with this policy.

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  • (Score: 5, Funny) by Anonymous Coward on Saturday February 07 2015, @04:01AM

    by Anonymous Coward on Saturday February 07 2015, @04:01AM (#142131)

    i'm looking forward to my home loan having a negative interest rate :p

  • (Score: 5, Interesting) by anubi on Saturday February 07 2015, @04:06AM

    by anubi (2828) on Saturday February 07 2015, @04:06AM (#142132) Journal

    with the printing press.

    With the advent of fractional reserve banking, privileged ones chartered by their government, can simply draft a note for money. Its no longer a case that I have to have something first before I can lend it to you. Its now a case of "you want a some music? Let me run some off for you!", so no bank or institution wants to pay for the use of money, just as very few of us want to pay for something we can get for the cost of copying some off.

    However, not all of us have this privilege of running off money, issuing a note, or whatever they want to call it, and if the non-privileged need currency, they have to *earn* it.

    I remember a few topics back warning about the man with the smile, handshake, and pen. If you are not careful around these types, they will enslave the rest of us.

    --
    "Prove all things; hold fast that which is good." [KJV: I Thessalonians 5:21]
  • (Score: 5, Interesting) by aristarchus on Saturday February 07 2015, @05:04AM

    by aristarchus (2645) on Saturday February 07 2015, @05:04AM (#142136) Journal

    No science is more susceptible to obfustation than economics. Yes, some how, capital earns returns. How? Well, people own it, so aren't they entitled to something for all their effort of owning it? Do you have any idea what would happen if they just didn't own it, and let it go to pot?

    Now this is why, under neoclassical economics, courtesy of the Vienna Circle, that negative interest is theoretically impossible. Capital must demand a return, or else, capital will decrease, as would be the case if the market decided that capital was actually a liability . . . OMG! Do you know what this means? Capital does not necessarily deserve a return, and a some point people will pay you to take it off their hands, at a loss, but not as much of a lost as it could have been? An entire economy based on shorting. Not possible. And that, I think, is the point. Those of us in the real economy, who produce good and services, are not much concerned with what the parasitical capital class does with their "capital", we will produce nonetheless. I like using the word "nonetheless". But, nonetheless, the emergence of negative interest, which the American Central Bank has be circling for quite some time, marks the end of capitalism.

    --
    Someone please explain to Hemo that my AC posts never get moderated because no one understands them. (Stolen AC sig. )
    • (Score: 5, Insightful) by Anonymous Coward on Saturday February 07 2015, @05:19AM

      by Anonymous Coward on Saturday February 07 2015, @05:19AM (#142141)

      marks the end of capitalism

      Hardly.

      It means holding one particular currency is considered more risky than paying someone to hold onto your money. It means the market is having little to low confidence in the euro, in particular nations inside the euro zone.

      Also in some cases they are required to by the 'by laws' of their organization to buy bonds. No matter what. They will quickly fix that at the next shareholders meeting. Or they will see massive exodus flows on their hedgefunds and bond funds.

      What does that mean? Short term not much. But long term you may see louder calls for disbanding the euro. And you will see people moving their money into things that make the money. Not things that cost them money. What you are seeing is deflation at work not 'the end of capitalism'. If kept up it will completely freeze the loan markets (if you thought 2008 was bad this would be worse).

      I am pretty surprised to see anyone buy bonds at these levels of finance. It shows many of these dudes deserved to go under in 2008. Instead we bailed them out.

      • (Score: 3, Informative) by maxwell demon on Saturday February 07 2015, @07:25AM

        by maxwell demon (1608) on Saturday February 07 2015, @07:25AM (#142163) Journal

        It means holding one particular currency is considered more risky than paying someone to hold onto your money.

        Since those loans are in Euro, those loans contain the very same currency risk as holding the Euro itself. In other words, no matter what happens with the Euro, you're never going to get back more from those loans than if you just put the Euros under your pillar.

        --
        The Tao of math: The numbers you can count are not the real numbers.
        • (Score: 1) by soylentsandor on Sunday February 08 2015, @08:04AM

          by soylentsandor (309) on Sunday February 08 2015, @08:04AM (#142392)

          Except it's generally big organizations holding these bonds, holding a total of 220 billion Euros looking at a negative interest rate. They'd need to buy a lot of pillars -or pillows- to stash all that in cash. Plus big vaults and a lot of security guards and stuff. These bonds will likely still be the cheaper option.

          • (Score: 1) by alioth on Sunday February 08 2015, @09:31AM

            by alioth (3279) on Sunday February 08 2015, @09:31AM (#142403)

            Actually, they don't need much space - money isn't usually stored physically any more - that much money will fit quite happily in a 64-bit int.

            • (Score: 1) by soylentsandor on Sunday February 08 2015, @08:26PM

              by soylentsandor (309) on Sunday February 08 2015, @08:26PM (#142534)

              Sure, but that only counts if that integer is owned by a bank. Which can go bust, in which case you lose at least 25 of its most significant bits (meaning some money is backed by the government). The key here is risk management. And apparently, putting up with negative interest is considered to be the smaller risk for 220 billion euros. It's like a game, but with rules that change while you're playing.

      • (Score: 2) by aristarchus on Saturday February 07 2015, @07:25AM

        by aristarchus (2645) on Saturday February 07 2015, @07:25AM (#142164) Journal

        Well, they will buy bonds like this to avoid greater losses! But are you suggesting this is just a currency issue? Not a reflection on the value of capital itself, the value behind the currency? Maybe. Do you feel, lucky?

        --
        Someone please explain to Hemo that my AC posts never get moderated because no one understands them. (Stolen AC sig. )
    • (Score: 5, Interesting) by frojack on Saturday February 07 2015, @05:55AM

      by frojack (1554) Subscriber Badge on Saturday February 07 2015, @05:55AM (#142151) Journal

      Its actually much simpler than it seems.

      With DEFLATION, which the EU is generally experiencing today, 100 euros today can be reliably predicted to buy 110 euros tomorrow.

      If the deflation is expected to continue for a while, (and the best estimates is that this will continue in the EU for at least a couple more years) then it does not matter if you get your whole 100 euros back. Just so you don't lose it all.

      We just went through this in the states, where you were lucky if you could get 1% interest when loaning money, and the price of houses and hamburgers was falling like rocks. You saw how many banks failed during that time. We are on recovery, but the EU, while never in as deep as the US, is taking longer to come out of the depression.

      In Europe, they watched this process, and realized they don't want their money in banks for a while. Its not that hard to understand.

      And, (contrary to TFA) nothing in economics says negative interest is impossible. Its a theoretical short term condition that I clearly remember discussing 40 years ago in Monetary Theory.

      --
      No, you are mistaken. I've always had this sig.
      • (Score: 5, Insightful) by aristarchus on Saturday February 07 2015, @06:41AM

        by aristarchus (2645) on Saturday February 07 2015, @06:41AM (#142160) Journal

        See, economic theory is a playground for ideology! Deflation is the situation where the prices of commodities are falling. That is not the same as a falling return on capital, although, given enough time, it would have that effect. But in either case, negative interest suggests first that commodity prices were driven artificially high by, as Alan Greenspan hisself put it, unbridled enthusiasm. Of course, the second conclusion is that prices an capital were similarly over valued, and thus the situation we are in now. So, pump it up again? Buy enough tulips to keep the market from crashing? Or perhaps, just maybe, we try to put human productivity on a slightly more rational scale than the crap shoot of markets?

        --
        Someone please explain to Hemo that my AC posts never get moderated because no one understands them. (Stolen AC sig. )
      • (Score: 2, Informative) by Anonymous Coward on Saturday February 07 2015, @07:59AM

        by Anonymous Coward on Saturday February 07 2015, @07:59AM (#142169)

        And, (contrary to TFA) nothing in economics says negative interest is impossible.

        Nothing is impossible in economics because it's all human/social construct.

      • (Score: 2) by mtrycz on Saturday February 07 2015, @09:18AM

        by mtrycz (60) on Saturday February 07 2015, @09:18AM (#142181)

        Can I ask for data sustaining your claim that there is deflation in Europe/Euro.

        It's just devaluing slower than the Dollar.

        --
        In capitalist America, ads view YOU!
        • (Score: 3, Interesting) by q.kontinuum on Saturday February 07 2015, @09:54AM

          by q.kontinuum (532) on Saturday February 07 2015, @09:54AM (#142189) Journal

          The Guardian [theguardian.com] has an article with some statistics about it. I just checked it briefly.

          My impression is that the low oil-prices are the only reason for the short-term deflation we are experiencing. Since gasoline for cars is a substantial part of monthly expenses for most families, a decrease by ~30% has a strong impact. For those households heating with oil the impact is even stronger, and for other goods it has some minor impact on the prices because their transport gets cheaper.

          I wouldn't expect the oil-prices to stay that low for too long, though.

          --
          Registered IRC nick on chat.soylentnews.org: qkontinuum
        • (Score: 3, Informative) by frojack on Saturday February 07 2015, @08:45PM

          by frojack (1554) Subscriber Badge on Saturday February 07 2015, @08:45PM (#142294) Journal
          --
          No, you are mistaken. I've always had this sig.
          • (Score: 2) by mtrycz on Sunday February 08 2015, @09:08AM

            by mtrycz (60) on Sunday February 08 2015, @09:08AM (#142401)

            Yeah, but the burden of proof and stuff.

            Thanks.

            --
            In capitalist America, ads view YOU!
            • (Score: 2) by frojack on Sunday February 08 2015, @09:42AM

              by frojack (1554) Subscriber Badge on Sunday February 08 2015, @09:42AM (#142406) Journal

              Ok, wise guy, the experts say its official. Read the links.

              I'd like to know just what level of proof you were expecting over the internet?
              If you won't accept the published data and analysis of the European Commission, or the Economic Affairs Commissioner of the EU, just what the fuck were you expecting from me?

              Next time you ask for something, please post a detailed list of exactly what you will accept as proof, who's signature it has to bear, and how many people have to witness the signatures. You asked for data, I posted links to data, now you want to move the goal post.

              Lets see you post some current data showing the there ISN'T deflation. Must be provided by Independent auditors, of an internationally recognized auditing firm, signed by the finance ministers of no less that 5 EU member states. In triplicate.

              --
              No, you are mistaken. I've always had this sig.
              • (Score: 2) by mtrycz on Sunday February 08 2015, @08:25PM

                by mtrycz (60) on Sunday February 08 2015, @08:25PM (#142533)

                Calm down.

                You claimed something, I asked for references (with an uninformed opinion, yes), you provided references saying I could google that myself, I said that it's your burden to provide the sources.

                I stand corrected and that's the end of it. I wasn't provoking you or anything.

                --
                In capitalist America, ads view YOU!
      • (Score: 0) by Anonymous Coward on Sunday February 08 2015, @06:11AM

        by Anonymous Coward on Sunday February 08 2015, @06:11AM (#142385)

        It still doesn't make sense. It's true that in a deflation situation, that even with negative interest rates you could end up with more than you invested when the bond matures, but that's still less than if you just took the money and stuffed it into your mattress. Which is of course, why deflation is seen as such a bad thing.

        • (Score: 2) by frojack on Sunday February 08 2015, @09:26AM

          by frojack (1554) Subscriber Badge on Sunday February 08 2015, @09:26AM (#142402) Journal

          How much money do you think you can get under a mattress?
          How much money do you want in your home, attracting buglers and thieves?

          If you know that you will be able to buy the same new 500,000 euro house for 400,000 euros 6 months from now due to creeping deflation, wouldn't it be worth paying someone .005% per month to keep your money in a safe negotiable form for 6 months rather than paying 100,000 euros to armed men to guard your mattress for 6 months,

          Deflation is not necessarily a bad thing. You don't have to fight for the big raise, because your money goes farther. If it continued long enough, you might take a pay cut, but it seldom does persist for that long, and you don't care that much because everything goes down in price.

          Inflation is much more insidious.

          --
          No, you are mistaken. I've always had this sig.
    • (Score: 5, Informative) by c0lo on Saturday February 07 2015, @08:23AM

      by c0lo (156) Subscriber Badge on Saturday February 07 2015, @08:23AM (#142176) Journal

      But, nonetheless, the emergence of negative interest, which the American Central Bank has be circling for quite some time, marks the end of capitalism.

      No it means that storing your money in a bank is now a service which the bank provides to you at a cost.
      If you don't like the conditions, get them out of the bank and invest them. Or keep them under your mattress.

      --
      https://www.youtube.com/watch?v=aoFiw2jMy-0
      • (Score: 2) by Dunbal on Saturday February 07 2015, @07:27PM

        by Dunbal (3515) on Saturday February 07 2015, @07:27PM (#142275)

        I voted for investing. I now laugh at the 2% I might be able to get on a CD (without beginning to consider the myriad little charges banks feel they must tack on to my account for merely having one). So my wife shakes her head when I earn more in a month on my "half" of the money than she does in a full year. And this way we have the best of both worlds. Cash on hand in case of emergencies and an investment account growing at significant compound interest without all the management fees, withdrawal penalties, and other forms of guaranteed income "fund managers" feel they are entitled to take with your money (whether they earn or lose your money). Of course it takes a bit of time for research, a lot of patience, a lot of self discipline, and a bit of balls to stick with positions when you know you are right and the market seems to be telling you you are wrong.

        It really doesn't take all that much capital to start up, either. But hey if you prefer to leave your money in the hands of banks and greedy funds, well... you reap what you sow. They'll give you something for your money of course - if only a receipt.

        • (Score: 1, Informative) by Anonymous Coward on Saturday February 07 2015, @10:24PM

          by Anonymous Coward on Saturday February 07 2015, @10:24PM (#142318)

          Of course it takes a bit of time for research, a lot of patience, a lot of self discipline, and a bit of balls to stick with positions when you know you are right and the market seems to be telling you you are wrong.

          Or an indexed investment fund [stanford.edu]. I'm using Vanguard.

        • (Score: 1) by alioth on Sunday February 08 2015, @09:36AM

          by alioth (3279) on Sunday February 08 2015, @09:36AM (#142405)

          Keeping money in the bank has always had an effective negative interest rate - I've never seen a bank account (except in extraordinary conditions, which tend to be fairly brief) which actually beats inflation.

          But for the normal person, the bank is safe (with some deposit guaranteed, even if the bank fails). Most people are too risk averse to invest.

  • (Score: 0, Troll) by Anonymous Coward on Saturday February 07 2015, @05:25AM

    by Anonymous Coward on Saturday February 07 2015, @05:25AM (#142144)

    Is finally happening. Money is evolving. Soon it will be extinct.

    This is awesome! How soon will I be able to walk into a restaurant and order authentic Creole food for free?

  • (Score: 2, Flamebait) by Anonymous Coward on Saturday February 07 2015, @05:29AM

    by Anonymous Coward on Saturday February 07 2015, @05:29AM (#142147)
    Sounds good to me.
    It should cost them to support an evil like Nestlé.
    Nestlé has killed thousands of people.

    Source? Go look it up. It's not hard to find you lazy bastard.
    Nestlé is old evil.
    • (Score: 2) by K_benzoate on Saturday February 07 2015, @05:34AM

      by K_benzoate (5036) on Saturday February 07 2015, @05:34AM (#142149)

      Their CEO is a scumbag. [youtube.com] Imagine the views he holds in private that he's not willing to speak into a camera.

      --
      Climate change is real and primarily caused by human activity.
    • (Score: 2) by tangomargarine on Saturday February 07 2015, @06:30PM

      by tangomargarine (667) on Saturday February 07 2015, @06:30PM (#142255)

      If it's so easy to find why don't you post a damn link, then.

      --
      "Is that really true?" "I just spent the last hour telling you to think for yourself! Didn't you hear anything I said?"
      • (Score: 3, Informative) by tangomargarine on Saturday February 07 2015, @06:39PM

        by tangomargarine (667) on Saturday February 07 2015, @06:39PM (#142256)

        Ironically, the first result for "nestle evil" on Google is Is Nestlé as evil as is claimed? : skeptic - Reddit [reddit.com]:

        My native language is German, and I must say, after comparing the text with the video interview, the author of this text is a bit of a douche. He just translated those parts who fits his story. Brabeck obviously says, that water, just like any other scarce product, should have a market value (price), just to signify that one should not waste it. He also says that for countries/regions who can't pay this marketprice, there are still other solutions for providing them with water. So in my opinion, the man has a point. Why should one of the rarest products on our planet be avaiable for free? Imagine how many liters (or gallons or whatever) a western family could save per day. It's not that I want those poor africans to pay for their water, I want the whole modern world to remember, that the hundrets of liters of water per day who are getting consumed, aren't for free.

        --
        "Is that really true?" "I just spent the last hour telling you to think for yourself! Didn't you hear anything I said?"
        • (Score: 0) by Anonymous Coward on Sunday February 08 2015, @01:56AM

          by Anonymous Coward on Sunday February 08 2015, @01:56AM (#142343)

          Putting a price on something does nothing to prevent it from getting wasted. Not in a world where there is such an uneven distribution of wealth.

  • (Score: 2, Informative) by Anonymous Coward on Saturday February 07 2015, @05:54AM

    by Anonymous Coward on Saturday February 07 2015, @05:54AM (#142150)

    Economists thought it was impossible? Which economists? Because Keynesians and other people following perfectly ordinary, text-book macroeconomics known that negative interest rates were absolutely possible. This has been considered possible at least since the analysis of Japan's stagnation starting in the 90s. Possibly it's been known for much, much longer. But I guess if you live in the freshwater/Austrian bubble, where reality itself cannot penetrate, the informed analysis of the majority of your field stands no chance.

    • (Score: 1, Informative) by Anonymous Coward on Saturday February 07 2015, @07:49AM

      by Anonymous Coward on Saturday February 07 2015, @07:49AM (#142167)

      when you print billions or worthless dollars and euros, interest rates lose all meaning

      eventually you might realize the stupidity of keynesian economics when it all implodes and you end up like zimbabwe

      2008 was just the beginning of the end

      just as keynesian interventionism prolonged the great depression, so will history look back on this period in time as a doomed failure of keynesian policy

      http://en.wikipedia.org/wiki/Depression_of_1920–21 [wikipedia.org] is an example of how relatively short-lived a depression can be if government keeps its grubby hands off

      also, http://fee.org/freeman/detail/the-depression-youve-never-heard-of-1920-1921 [fee.org]

  • (Score: 5, Insightful) by Anonymous Coward on Saturday February 07 2015, @06:02AM

    by Anonymous Coward on Saturday February 07 2015, @06:02AM (#142154)

    FTFS: very rich people and big companies need to do something with their money

    ...and, apparently, hiring workers at a living wage so that those folks can then spend into the economy (the multiplier effect) isn't a part of the plan.

    Anyone who still has faith in the notion that giving more money (tax cuts) to entities that already have lots of money will improve the lot of the Working Class has 3 decades of evidence that that doesn't work.

    Why are people still voting for Neoliberals?

    -- gewg_

    • (Score: 2, Interesting) by khallow on Saturday February 07 2015, @08:35AM

      by khallow (3766) Subscriber Badge on Saturday February 07 2015, @08:35AM (#142178) Journal

      ...and, apparently, hiring workers at a living wage so that those folks can then spend into the economy (the multiplier effect) isn't a part of the plan.

      They do. It's just that most of the workers are in places like China rather than places like the US. The US used to be able to compete. Now, it's just whining about how to force employers ("very rich people and big companies") to do the stuff they used to do voluntarily.

      Why are people still voting for Neoliberals?

      Never happened. For example, the neo-liberal would have run that "living wage" crap out of town. They wouldn't be hiding millions of unemployed people in prisons, schools, or forced retirement. Supply of labor went up? Price of labor goes down.

      • (Score: 2, Informative) by Anonymous Coward on Saturday February 07 2015, @10:25AM

        by Anonymous Coward on Saturday February 07 2015, @10:25AM (#142192)

        the workers are in places like China rather than places like the US

        Yes, that's Step 2 in the Neoliberal playbook.
        Step 1 is to get trade deals enacted that drop tariffs and eliminate labor standards on imports.

        Folks: If you haven't contacted your congresscritter on TPP (SHAFTA), you need to do that NOW.
        No fast-track approval.
        "Do you want this to go through without any examination/debate?"

        the neo-liberal would have run that "living wage" crap out of town

        Disingenuous. You know full well what the labor rates are in the USA--especially the minimum wage whose purchasing power hasn't kept up for 45 years.
        If it was not for Neoliberals making worker-hostile laws, the minimum wage of USA workers would be $20, like it is in Denmark.

        You also know that at the same time that wages have stagnated, worker productivity in the USA has continued to go up and up.
        If wages had kept up, the minimum wage would be over $23.
        Source: Kshama Sawant, PhD, Professor of Economics

        -- gewg_

        • (Score: 1) by khallow on Tuesday February 10 2015, @05:26AM

          by khallow (3766) Subscriber Badge on Tuesday February 10 2015, @05:26AM (#143007) Journal

          Disingenuous. You know full well what the labor rates are in the USA--especially the minimum wage whose purchasing power hasn't kept up for 45 years. If it was not for Neoliberals making worker-hostile laws, the minimum wage of USA workers would be $20, like it is in Denmark.

          Labor rates in the US would be a lot better with a collective drop in wages due to an increase in demand for the labor. And absence of minimum wage law would not be "worker-hostile" laws.

          Moving on, Denmark doesn't actually have a minimum wage. The $20 per hour figure apparently comes from the average minimum wage in contracts negotiated by employees' trade unions. I gather 20% of Denmark's workers don't belong to these trade unions.

          When I looked at US wage distribution, I found that somewhere around 60% of US workers fall below the $20 per hour mark, a good portion well below. That indicates to me that a high minimum wage would be brutal to employment of US workers. We already have rather high unemployment of young adults and African Americans, for example. A $20 per hour minimum wage would make that much worse.

          My view is that it'd be better to just get rid of minimum wages outright (as well as most social programs) and go with a basic income. There is some merit to a progressive tax scheme, so I would support a modestly progressive, loophole-free scheme.

          You also know that at the same time that wages have stagnated, worker productivity in the USA has continued to go up and up. If wages had kept up, the minimum wage would be over $23.

          Wages won't keep up until the US has near parity with most of the labor of the world. I think that will take about half a century, maybe a bit less. Whether that parity is above or below most of the world will depend a lot on what sort of policies the US implements or doesn't implement now. My view is that so-called "worker-hostile" laws, many which are just the absence of bad labor law, would go a long way to making the US a better place for labor in the future.

          • (Score: 2) by urza9814 on Tuesday February 10 2015, @02:44PM

            by urza9814 (3954) on Tuesday February 10 2015, @02:44PM (#143145) Journal

            When I looked at US wage distribution, I found that somewhere around 60% of US workers fall below the $20 per hour mark, a good portion well below. That indicates to me that a high minimum wage would be brutal to employment of US workers. We already have rather high unemployment of young adults and African Americans, for example. A $20 per hour minimum wage would make that much worse.

            Studies show this is not what happens. [udel.edu] Minimum wage goes up, employment also goes up. Granted, there's probably a balancing point above which that is no longer true, but it does appear that we're below that line right now.

            • (Score: 1) by khallow on Wednesday February 11 2015, @04:02AM

              by khallow (3766) Subscriber Badge on Wednesday February 11 2015, @04:02AM (#143435) Journal

              Studies show this is not what happens. Minimum wage goes up, employment also goes up.

              The study in question did not study increases to $20. The biggest increase was by $1 per hour. It also didn't study any long term effects.

            • (Score: 1) by khallow on Wednesday February 11 2015, @04:09AM

              by khallow (3766) Subscriber Badge on Wednesday February 11 2015, @04:09AM (#143439) Journal
              As to long term effects of minimum wage, I'll point to the high unemployment among US youth and African Americans as an indication that minimum wage is not beneficial.
    • (Score: 1) by http on Saturday February 07 2015, @10:42AM

      by http (1920) on Saturday February 07 2015, @10:42AM (#142194)

      Because idiots think that running a small business (or being a contracter) means they are a Capitalist.

      --
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    • (Score: 2) by Non Sequor on Saturday February 07 2015, @01:36PM

      by Non Sequor (1005) on Saturday February 07 2015, @01:36PM (#142211) Journal

      I've been thinking that historically before the last few centuries, what we call the fixed interest rate loan or bond was forbidden or restricted by many cultures.

      The ancient Hebrews actually had a 50 year Jubilee cycle where if you could not build up your family's wealth forever because the Jubilee canceled debts and reverted land ownership, resetting the game. In the middle ages, most fixed interest lending was across religious lines because in Europe each religion forbade lending at interest within the religion. To some extent religious violence was motivated by clearing debts.

      The rich try to build up a level of assets that lets all of their descendants live off of it indefinitely. I wonder if these historical restrictions were motivated by observations of the unsustainability of this goal.

      That said, it could be that investments like stocks and joint ventures may not be unsustainable since if conditions change, the welfare of both the person providing the cash and the person making use of the cash can be rebalanced for the new conditions.

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      • (Score: 2) by maxwell demon on Saturday February 07 2015, @01:49PM

        by maxwell demon (1608) on Saturday February 07 2015, @01:49PM (#142213) Journal

        The difference between stocks and loans is that with stocks, the one giving the money loses if the business goes bad. With loans, he only loses if the business goes so bad that repaying the loan is not possible. In other words, with stocks, the one giving the capital shares the risk. With loans, the one giving the capital reduces his risk at the expense of the one receiving it.

        --
        The Tao of math: The numbers you can count are not the real numbers.
        • (Score: 2) by Non Sequor on Saturday February 07 2015, @07:23PM

          by Non Sequor (1005) on Saturday February 07 2015, @07:23PM (#142273) Journal

          I'm fully familiar with those concepts. I think they may have other more subtle impact on social dynamics than we currently understand.

          Currently, the most common instrument of finance is the loan (in various forms) where the terms of repayment are fixed at the beginning and only subject to change under exceptional circumstances (and the definition of exceptional circumstances is also subject to change due to changes bankruptcy laws). This is exactly the manner in which most financing is done for governments, companies, and individuals.

          The borrower and lender look at conditions at the beginning and set terms they both think are agreeable (we'll assume they're both reasonably well-informed in this decision). Conditions may change to make it easier for the borrower to repay the loan or harder for the borrower to repay the loan. The current status quo is that these contracts are enforced unless a threshold is exceeded where bankruptcy is permitted.

          Most of our economic policy is actually dedicated towards preventing economic downturns from causing spikes in default rates since they can have a spiraling effect. What this effectively means is that our economic policy guarantees that no matter how much money you have, there will always be investments with guarantees implicitly backed by government policy. We maintain levels of insulation against risk and preventing them from being breached is a policy imperative.

          Is there a point where this isn't workable? Can the opportunities for safe investments be "overfished" to the point where trying to smooth out the business cycle doesn't work? Would we have the same problems if more financing were structured with sharing of outcomes between borrower and lender?

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  • (Score: 5, Insightful) by bradley13 on Saturday February 07 2015, @08:18AM

    by bradley13 (3053) Subscriber Badge on Saturday February 07 2015, @08:18AM (#142174) Homepage Journal

    This is hardly new, having been the case for months now. Nor was there ever any reason to see it as impossible, although it points toward a possible spectre of deflation. The negative interest rates indicate two problems:

    - The governments and central banks: Denial of reality. Government debt must be brought under control [coyoteblog.com]; instead they continue to print more and more money. The latest ECB maneuver: another trillion Euros to buy up government bonds held by banks. They claim they want the banks to go lend that money to industry, but it is pretty obvious that the banks will just refill their portfolios with more government bonds. No money will actually flow into the economy.

    - The big banks: They refuse to do actual, traditional banking. As a private business, getting a loan is just as impossible as it ever was; if you do get an offer, it will be at usurious interest rates. The banks would apparently rather hold government bonds, and earn their money by speculation, interest rate manipulation, etc.. If you want actual banking services, either as an individual or as an SME, you go to a small bank. The big banks actively work to get rid of your business. It's really strange.

    --
    Everyone is somebody else's weirdo.
    • (Score: 4, Informative) by bradley13 on Saturday February 07 2015, @01:09PM

      by bradley13 (3053) Subscriber Badge on Saturday February 07 2015, @01:09PM (#142205) Homepage Journal

      Just a quick note about the Swiss franc, which is a bit of a special case. The Swiss currency is viewed by a lot of rich individuals, companies and even countries as a "safe haven". This tends to drive up the value of the Swiss franc, which is a disaster for our export industries. The Swiss National Bank has therefore introduced negative interest in an attempt to drive people away from the franc, in order to keep its value down, so that our export industries can remain competitive without moving their production out of the country.

      --
      Everyone is somebody else's weirdo.
  • (Score: 2) by SuperCharlie on Saturday February 07 2015, @04:13PM

    by SuperCharlie (2939) on Saturday February 07 2015, @04:13PM (#142221)

    From one direction,it is negative interest, from the other it is positive. You have to look at it as who is lending money to whom and it makes a little more sense.

  • (Score: 0) by Anonymous Coward on Saturday February 07 2015, @06:59PM

    by Anonymous Coward on Saturday February 07 2015, @06:59PM (#142264)

    Very simple: interest is the price of money, so negative interest rates mean the money will eventually be worthless.
    It's a very bad sign.

  • (Score: 0) by Anonymous Coward on Sunday February 08 2015, @06:40AM

    by Anonymous Coward on Sunday February 08 2015, @06:40AM (#142387)

    If your checking account has a fee isn't that effectively a negative interest rate?