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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: 2) by GungnirSniper on Wednesday July 27 2016, @06:46PM

    by GungnirSniper (1671) on Wednesday July 27 2016, @06:46PM (#380828) Journal

    So people will withdraw their money, or is that illegal like FDR's gold grab?

    • (Score: 4, Interesting) by Jeremiah Cornelius on Wednesday July 27 2016, @07:01PM

      by Jeremiah Cornelius (2785) on Wednesday July 27 2016, @07:01PM (#380835) Journal

      Interesting to note: When putting money in interest-bearing accounts with a bank, you do NOT have cash on deposit, withdrawable on demand.

      I know that seems counter-intuitive. I assure you, that this is true for all modern banking regulations, in every legal jurisdiction.

      In effect, you actually extend a loan of the "deposited" assets, on terms dictated by the debtor bank, withing their legal regulatory framework. This is why they offer interest - they are in debt to you, for the principal of your deposits.

      It's absolutely the weirdest arrangement on earth. I wish I were able to dictate the interest rate I chose to MY creditors!

      When you get your head around this, you will understand much about money and finance that is frequently and deeply misunderstood. Things like the 2008 "financial crisis" will be understood in different dimensions than before.

      You may also see why "white knights" like Senator Warren are just more participants in a terrible game, not opponents to the principles under which it is played.

      Just beware of the conspiracy nuttiness and unevidenced speculation that includes everything from Nazi gold, "lizard people" and race "theory".

      --
      You're betting on the pantomime horse...
      • (Score: 3, Informative) by Anonymous Coward on Wednesday July 27 2016, @08:27PM

        by Anonymous Coward on Wednesday July 27 2016, @08:27PM (#380870)

        This may be (Score:4, Interesting)... but it is also (Score:-1, Wrong)...

        Interesting to note: When putting money in interest-bearing accounts with a bank, you do NOT have cash on deposit, withdrawable on demand.

        This is technically true [xkcd.com], but not in the way you imply. The cash is withdrawable on demand, just not in a "drop by the local branch and ask for $100,000 at once with no prior notice" way. The reason you can't get all the cash ASAP is that banks don't just sit on the money in a vault. You can get access to the cash whenever you want, but you may need to give them a few days of notice before hand to actually get the physical currency for you to take out.

        You can find numerous examples of this, but one such is here [ussfcu.org]. Note how the checking account has 0 limits, and the savings account only limits the number (not amount) of some types (but not all) withdrawals.

        If you really wanted to have all the cash on hand at a moment's notice, pay for something like a safety deposit box.

        In effect, you actually extend a loan of the "deposited" assets, on terms dictated by the debtor bank, withing their legal regulatory framework.

        No. You are extending a loan to them on the terms you both agree to. If you don't like the terms the bank offers, then don't deposit money with them.

        I don't understand what counter-proposal you are suggesting. Besides the law (regulatory framework), what else should interfere in the willing contracting between two competent parties?

        It's absolutely the weirdest arrangement on earth. I wish I were able to dictate the interest rate I chose to MY creditors!

        That is just the contract you had agreed to. If you prefer to have a static interest rate, look into something like a CD ("Certificate of Deposit"). Of course there are drawbacks of the payment being less liquid, but the option does exist.

        As for dictating interest rates, you can do the exact same thing. You can go to any competent party and tell them "if you give me $1000 on these terms, I'll pay you back at some variable interest rate subject to the following terms." If they agree, then you are dictating the interest rates to your creditors.

        Things like the 2008 "financial crisis" will be understood in different dimensions than before.

        The worst part is that you are right in that the financial crisis is generally misunderstood (for example, the "Greek bailouts" were actually bailouts to German banks and other creditors who had lent money to Greece). However, given what you have said, I think you the reasons are probably not the ones that you think they are.

        • (Score: 2) by isostatic on Wednesday July 27 2016, @09:03PM

          by isostatic (365) on Wednesday July 27 2016, @09:03PM (#380889) Journal

          Your money does not sit in a vault (http://m.youtube.com/watch?v=_Er69b4HMl8)

          Why would anyone give you money for the privilege of storing it for you?

          • (Score: 2) by len_harms on Wednesday July 27 2016, @10:07PM

            by len_harms (1904) on Wednesday July 27 2016, @10:07PM (#380911) Journal

            I like this video on what the market is. Not sure if he is correct on the wave theory he puts forward. He does make a good hypothesis for it though. That would need to be mathmatically proven for it to be less than a theory.

            https://www.youtube.com/watch?v=PHe0bXAIuk0 [youtube.com]

            The downside is it starts off like a pitch to a pyramid scheme.

            In this case storing money is how banks are allowed to by our government and its regulations to create credit. The risk they take on is passed onto you by being the middle man. Meaning they can fractionally loan out your money but you only get a fraction of the loan interest value back however it is very low risk to you. As they are taking on more of the risk than you are. That is the trade off. You to can get about the same interest rates as banks do. However, you need to take on more risk than just dropping in into a bank. They do not work for 'free'.

      • (Score: 4, Informative) by jmorris on Wednesday July 27 2016, @11:43PM

        by jmorris (4844) on Wednesday July 27 2016, @11:43PM (#380942)

        When putting money in interest-bearing accounts with a bank, you do NOT have cash on deposit, withdrawable on demand.

        Lemme correct that to "When putting money in a bank, you do NOT have cash on deposit, withdrawable on demand."

        That is what they advertise but it isn't entirely true, You are giving the bank a loan at zero (or laughably low) interest with a duration of zero in that, in theory, you can withdraw (or more typically write checks against it) it the same day. They then do 'maturity transformation' on your money and loan it out in longer term loans at much higher interest while keeping a small portion of deposited money in a reserve against net withdrawals combined with 'drawing authority' at a FED bank to cover the event the reserve isn't large enough to cover a short term run on the bank.

        They make their money off the 'maturity transformation' by giving you low interest on the short term money you loan (i.e. deposits, short term CDs) them and charging higher on the long term loans. When stated that way the problem becomes obvious, they are making promises they can't actually keep and papering it over with a small reserve and a credit line from a larger bank who is only playing the same game on a larger scale. And it is unstable, which is why the history books are filled with 'banking panics', 'bank runs' and other phrases that means the same thing. It is a pyramid scheme. Just that would be unstable enough to go boom from time to time but then they double down on the stupid with credit creation and a whole host of recent innovations in 'financial instruments.'

        Credit Default Swaps are really stupid. They only become important when things go sideways and the usual bank rules have failed... which is when you are supposed to cash them in to cover it.... assuming all of the people holding them aren't ALSO caught in the same cocked up economy that caused you to need to fall back on them in the first place. So what the existence of the things mean is that if more than one or two banks are hosed, EVERYBODY is hosed. Which is actually kinda genius in an evil way because such a mutually assured destruction system makes everyone 'too big to fail' and summons the FED's helicopter money.

  • (Score: 5, Interesting) by TrumpetPower! on Wednesday July 27 2016, @06:56PM

    by TrumpetPower! (590) <ben@trumpetpower.com> on Wednesday July 27 2016, @06:56PM (#380833) Homepage

    A big part of the reason people keep their money in bank accounts is because it's safer there than stuffed into the mattress. But negative interest rates mean that you're actually guaranteed to lose your money if you put it in the bank.

    As such, negative interest creates a powerful incentive to abandon the banking system entirely in favor of a cash-based economy -- which severely cuts into the State's ability to keep tabs on financial transactions. And it cuts demand for banking services.

    None of that is really sustainable given today's political climate. Neither the bankers nor the politicians want to be cut out of the loop...

    ...which tells me that this is more of a move by the banks to signal to those who set the interest rates that they're not going to put up with this.

    Cheers,

    b&

    --
    All but God can prove this sentence true.
    • (Score: 2) by Jeremiah Cornelius on Wednesday July 27 2016, @07:10PM

      by Jeremiah Cornelius (2785) on Wednesday July 27 2016, @07:10PM (#380839) Journal

      Just don't start living in a plywood shack, in the Montana wilderness.

      --
      You're betting on the pantomime horse...
      • (Score: 0) by Anonymous Coward on Wednesday July 27 2016, @07:24PM

        by Anonymous Coward on Wednesday July 27 2016, @07:24PM (#380844)

        What's so wrong with that?

        • (Score: 1, Touché) by Anonymous Coward on Wednesday July 27 2016, @08:37PM

          by Anonymous Coward on Wednesday July 27 2016, @08:37PM (#380878)

          Use hardwood instead.

        • (Score: 0) by Anonymous Coward on Wednesday July 27 2016, @09:29PM

          by Anonymous Coward on Wednesday July 27 2016, @09:29PM (#380897)

          What's so wrong with that?

          Nothing if you like sending packages.

        • (Score: 0) by Anonymous Coward on Thursday July 28 2016, @03:07PM

          by Anonymous Coward on Thursday July 28 2016, @03:07PM (#381216)

          Montana is in the U.S.A.

    • (Score: 4, Informative) by n1 on Wednesday July 27 2016, @07:55PM

      by n1 (993) on Wednesday July 27 2016, @07:55PM (#380855) Journal

      As far as a 'move by the banks' saying what they wont put up with... Currently RBS is about 73% owned by the UK government and ABN AMRO is 100% Dutch state-owned.

      Of course, state owned banks, the central banks and the government are all 'independent' of each other, so maybe you're right...

      • (Score: 2) by TrumpetPower! on Wednesday July 27 2016, @08:03PM

        by TrumpetPower! (590) <ben@trumpetpower.com> on Wednesday July 27 2016, @08:03PM (#380858) Homepage

        Even in totalitarian governments, the different institutions are their own fiefdoms run by their own chieftains who wind up butting heads and fight over turf. The head of one state-owned bank would be hard pressed to come up with a better way to signal displeasure at a proposal from the head of another state-owned bank than this sort of "public service announcement."

        b&

        --
        All but God can prove this sentence true.
        • (Score: 4, Informative) by n1 on Wednesday July 27 2016, @08:30PM

          by n1 (993) on Wednesday July 27 2016, @08:30PM (#380873) Journal

          The current chairman of RBS has a career that includes: Financial Services Authority, Morgan Stanley, UK Treasury, Special Advisor to Chancellor of the Exchequer, UK Foreign Office, LSE, China Banking Regulatory Commission, Government Investment Corporation of Singapore and Asian Bureau of Finance and Economic Research.

          Two months before he became RBS chairman he was head of UK Airports Commission. He is clearly a trusted pair of hands for governments, for better or worse.

    • (Score: 4, Informative) by butthurt on Wednesday July 27 2016, @08:02PM

      by butthurt (6141) on Wednesday July 27 2016, @08:02PM (#380857) Journal

      > But negative interest rates mean that you're actually guaranteed to lose your money if you put it in the bank.

      Numerically, yes. However if sufficient deflation occurs, it can make up for that, just as inflation offsets a positive interest rate.

      In Spain when there were negative interest rates on mortgages, banks were legally required to pay mortgagors or reduce their principal. At some banks, software lacked provisions for doing so. The law has been fixed now, if I'm not mistaken.

      http://www.npr.org/2015/04/14/399641297/when-rates-turn-negative-banks-pay-customers-to-borrow [npr.org]

    • (Score: 4, Insightful) by snick on Wednesday July 27 2016, @08:16PM

      by snick (1408) on Wednesday July 27 2016, @08:16PM (#380863)

      Inflation does exactly the same thing for the money in your mattress.

      • (Score: 3, Informative) by TrumpetPower! on Wednesday July 27 2016, @08:37PM

        by TrumpetPower! (590) <ben@trumpetpower.com> on Wednesday July 27 2016, @08:37PM (#380879) Homepage

        CPI has been negligible for the past few years...under 2% since May of 2012 (save for a minor blip in spring of 2014), and was actually fractionally negative (rounding to zero) for the first half of last year. It's been under 5% since 2000 except for a brief moment in the summer of 2008. Mostly, it hovers around the Fed's target rate of 2%.

        http://inflationdata.com/inflation/inflation_rate/currentinflation.asp [inflationdata.com]

        And we're rather unlikely to see inflation with negative interest rates...rather, deflation would be the concern....

        Cheers,

        b&

        --
        All but God can prove this sentence true.
        • (Score: 3, Insightful) by dry on Thursday July 28 2016, @02:53AM

          by dry (223) on Thursday July 28 2016, @02:53AM (#381016) Journal

          Yea, my government (Canada) claims the same, inflation rate about 2%. Meanwhile, in the last year where I live, price of gasoline has gone up 10% (though it did drop by 30% not too long ago), price of housing has gone up 25%, price of food has gone up 5-20% depending on whether you eat meat and fresh vegies, price of electricity has gone up a few percent and so on. Meanwhile offsetting that is, phones have doubled in power while staying the same price, so that's like dropping in price by half. TV's have grown by another 10% while dropping in price by perhaps 10%, so that's another minus 20 odd percent. Automobiles have also dropped down in price by a few percent and so on. Put it together and inflation is 2%.
          The problem is that the stuff dropping in price is mostly luxury items, stuff that ideally is only bought after meeting the basic needs or not bought at all (my computer is 10 yrs old, phone is almost as old and TV was replaced due to the last crappy one dieing) while food, housing, local transportation (air flight tickets have gone down if you don't have luggage etc) have all gone up way more then wages, which are mostly stagnant.
          It sounds good that inflation is 2%, and it is true if food and housing is only a small part of your budget but if you're only making the average or even mean wage, your paycheck is disappearing way quicker then at 2%, even after substituting hamburger for steak and cabbage for cauliflower ($5 a head lately).

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

        by Anonymous Coward on Thursday July 28 2016, @06:28AM (#381076)

        Inflation works for both, though, so you can't use it as a counter-argument.

    • (Score: 0) by Anonymous Coward on Thursday July 28 2016, @01:51AM

      by Anonymous Coward on Thursday July 28 2016, @01:51AM (#380987)

      With inflation, you are guaranteed to lose your money if you put it in your mattress too.

      Cash is much more expensive to deal with for business. A fleet of armoured trucks is a lot more expensive than a few keystrokes on a computer somewhere. Even with negative interest rates on the money, they would still be competitive with cash fees until they got big enough negative.

    • (Score: 1) by toddestan on Thursday July 28 2016, @02:56AM

      by toddestan (4982) on Thursday July 28 2016, @02:56AM (#381019)

      The banks have been wanting to do this for a while. This one of the reasons they are pushing for the elimination of larger bills like the $100, as large transactions in a cash-based economy is harder when you only have smaller bills and coins available.

  • (Score: 5, Insightful) by Anonymous Coward on Wednesday July 27 2016, @07:08PM

    by Anonymous Coward on Wednesday July 27 2016, @07:08PM (#380837)

    This is why the banks want to attack cash.
              In Europe, there are already low limits on cash transactions -- I believe there are 3,000 Euro limits in one country, and perhaps as low as 1,000 Euros in another. There have been hit pieces published about cash -- suggestions to get rid of the US $100 dollar bill, moves to get rid of the 500 Euro Note, etc. They all say that its about fighting crime. It isn't. The black market WILL find a way around the problem even if ALL cash is banned. Its about the banks. They don't want you to be able to withdraw your money. That way, they can impose negative interest rates on all accounts, charge fees on EVERY transaction, and we the customers have NO CHOICE. With cash we can withdraw our money.
              Governments also like the idea of getting rid of cash. This way they can monitor EVERY transaction. This is better for tax revenues, and more importantly, for control. Piss off the wrong bureaucrat, and poof! They've frozen or siezed all your money, and you can't even buy food, much less pay a lawyer to fight the bogus charges.
              Corporations are going to love this too. Lets say that one of them claims that you owe them money. You don't. Well nevermind, they'll just take it out of your accounts anyway. You couldn't make your rent payment because of that? Not their problem.
              No cash means No Control Of Your Money.
              There is a lot of coverage of this in the alternative press. Just search for "War on Cash".

    • (Score: 1) by nitehawk214 on Wednesday July 27 2016, @08:05PM

      by nitehawk214 (1304) on Wednesday July 27 2016, @08:05PM (#380860)

      While what you say is probably true, this is frighteningly new branch that is more like "war on not being in debt". Penalize people that are not up to their neck in debt? Make it more profitable for people to be in debt so they take out credit they can never afford to pay back?

      What the fuck is going on here? Is it a plan to keep people so far in debt that they are chained to the existing banking system? I suppose nobody is afraid of a revolution since people are generally happy and generally better off than decades ago, even though people "feel" like things are going to hell.

      Lets wait a couple years into the next presidential administration and ask if people are actually better off than they were a few years ago.

      --
      "Don't you ever miss the days when you used to be nostalgic?" -Loiosh
      • (Score: 3, Interesting) by Zz9zZ on Wednesday July 27 2016, @08:27PM

        by Zz9zZ (1348) on Wednesday July 27 2016, @08:27PM (#380868)

        I don't think this is part of some big plan, but in general the strategy is to keep people in debt. There is a reason usury was declared illegal back in the day, and to go biblical it was also why Jesus kicked the money lenders out of the temple. Greedy bastards making a profit by having enough money to lend. The only cost is in hiring thugs to break kneecaps, or senators to pass legislation.

        But this story here sounds more like the banks threatening the little people to keep the government from lowering interest rates and hurting the banks profit margin. It is very telling that the banks waited until this point, I presume at 0% a lot of their auto-generating profits stop working so they'll squeeze the money out of their customers. I can't believe that is legally even possible for them to charge negative interest!?

        --
        ~Tilting at windmills~
      • (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."

        • (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.

    • (Score: 2) by fritsd on Wednesday July 27 2016, @08:33PM

      by fritsd (4586) on Wednesday July 27 2016, @08:33PM (#380876) Journal

      When you want to get a substantial amount of money out of the wall ATM in a Eurozone country, it's € 50. If you need more, you get 2 or 3 of those notes.

      I have seen a green € 100 note exactly twice in my life.

      I have never ever seen a € 500 note except on the ECB website: http://www.ecb.europa.eu/euro/banknotes/denominations/html/index.en.html [europa.eu]

      You can't easily pay with the € 100; you'd have to go to a bank to split it into smaller denominations.

      • (Score: 2) by FlyingSock on Thursday July 28 2016, @07:02AM

        by FlyingSock (4339) on Thursday July 28 2016, @07:02AM (#381087)

        True, but getting larger amounts is not that hard. You just have to go to the bank teller and request a larger withdrawal. This may take a few days but other than that is not associated with any costs.

  • (Score: 2) by bob_super on Wednesday July 27 2016, @07:15PM

    by bob_super (1357) on Wednesday July 27 2016, @07:15PM (#380841)

    It's coming from the same banks who are complaining that they have to keep too much in reserves to leverage their speculative investments, right?

  • (Score: 4, Informative) by krishnoid on Wednesday July 27 2016, @07:40PM

    by krishnoid (1156) on Wednesday July 27 2016, @07:40PM (#380849)

    So if a bank can "pay" negative interest rates, does that mean that there's too much cash around and nobody needs to borrow any? What actual money/economic situation does "paying" negative interest rates correspond to?

    • (Score: 4, Insightful) by Dunbal on Wednesday July 27 2016, @08:12PM

      by Dunbal (3515) on Wednesday July 27 2016, @08:12PM (#380862)

      The retarded idea is that it penalizes people that "save" money and forces you to spend every penny you have. For a ridiculous apparent short term "boost" to the economy. The problem is though if you've spend all your money, you won't have any for stuff you really need. No problem, the bank says, we'll LEND you some money (at interest). Gotcha. So basically even money becomes "rented".

      Now this idea is completely flawed for two reasons. First, the incorrect assumption that individuals are not those who can best determine where they allocate their wealth. This flies into the face of economic theory but is VERY convenient for those who have monopolies and oligopolies, because they know that your dollars are invariably headed into their hands the minute they leave yours. The second reason is the ridiculous assumption that saving is somehow "bad". Because presumably when you have money in a bank account the bank just sits on your money and does nothing with it. Wrong. The bank takes your money and lends it out ANYWAY, so it doesn't really matter if you have "savings" or not - the money is STILL in circulation.

      If you have savings in an account you are much more likely to consider many discretionary purchases with your income. If you have no savings, you are forced to spend your money - but on survival.

      • (Score: 1) by nitehawk214 on Wednesday July 27 2016, @08:28PM

        by nitehawk214 (1304) on Wednesday July 27 2016, @08:28PM (#380871)

        Banks managed to convince the government that people saving money hurts the economy. That somehow the answer to our economic problems is to get individuals out there spending what little money they have left. That this will give us a short-term gain, boost confidence, and get politicians reelected. (hey, it might actually work)

        And anyone with enough money to save any must be some evil rich person. (hey, they might actually be evil)

        Of course this really only hurts middle class people that were trying to save up to buy a house because they were afraid to take a loan when the rates dropped through the floor in the crazy BUY BUY BUY EVERYTHING MUST GO era post-2009.

        --
        "Don't you ever miss the days when you used to be nostalgic?" -Loiosh
        • (Score: 4, Informative) by Dunbal on Wednesday July 27 2016, @09:12PM

          by Dunbal (3515) on Wednesday July 27 2016, @09:12PM (#380892)

          This is all about slavery. If you have no savings and only debt, you work for the bank.

          • (Score: 1, Funny) by Anonymous Coward on Wednesday July 27 2016, @10:04PM

            by Anonymous Coward on Wednesday July 27 2016, @10:04PM (#380909)

            if you have no slavings

      • (Score: 1) by caffeinated bacon on Thursday July 28 2016, @02:20AM

        by caffeinated bacon (4151) on Thursday July 28 2016, @02:20AM (#381001)

        If everyone is saving and nobody is spending. What kind of idiot do you need to be to borrow money from a bank and invest? You will just lose all your money. Better to wait until the economy recovers and spending picks up. Oops, it never will because people will just save more and more. Now that deflation has also kicked in and things are getting cheaper. Why buy something today when next month is will be cheaper? So people spend even less and save even more, and there is even less incentive to invest. Since all the businesses are now less profitable due to decreased spending, how many workers will be getting pink slips? Now there is even less spending, and also less reason to invest. This will not end well...

    • (Score: 2, Disagree) by nitehawk214 on Wednesday July 27 2016, @08:22PM

      by nitehawk214 (1304) on Wednesday July 27 2016, @08:22PM (#380866)

      Banks don't really want people putting their money into accounts. With the reserve requirements the way they are (10% in the USA, 1% in the EU and by per-bank contract in the UK (In fact I think they actually penalized banks for having TOO MUCH in reserve)), banks hardly need to hold any money at all in order to lend out.

      Even better (for the banks), these are the same institutions that have credit cards. If people manage to spend all their money they start running credit cards (Why hold on to money if it will just disappear, eh?). Those are VASTLY more profitable for the banks than secured or personal loans.

      Banks are evil and people are stupid. Yet some how smart people with no debt end up paying for it all.

      --
      "Don't you ever miss the days when you used to be nostalgic?" -Loiosh
      • (Score: 0) by Anonymous Coward on Thursday July 28 2016, @01:12PM

        by Anonymous Coward on Thursday July 28 2016, @01:12PM (#381163)

        Rubbish, if banks didn't want people putting money into their accounts, why even pay them interest in the first place? Banks are competing with other banks for your money, because the more money you lend them, the more money they can lend other people, multiplied.

        What do you think the overnight cash rate is? It's banks that don't have enough deposits borrowing from other banks to make up the difference. It's much cheaper for them to borrow that money from you.

    • (Score: 0) by Anonymous Coward on Thursday July 28 2016, @06:36PM

      by Anonymous Coward on Thursday July 28 2016, @06:36PM (#381275)

      You are asking the right question.

      Here's the simple answer: negative interest rates exist when there is more money to invest than good ideas about how to invest it.

      Banks serve two functions; and both reasons are important when deciding to give them your money: in addition to lending your deposited money into productive investments and giving you back a portion of its profits in the form of interest, it's a convenience service for you to not have to keep the cash inside your mattress, not to mention cheques, credit cards, and online transactions. So when there are no productive investments where the banks can park the moneywith interest, clients can still be willing to pay to have the convenience service.

      The interest rates are low because few want to pay to build factories or purchase equipment (or office buildings, or support development of new products, etc...). Basically, we need revolutionary new inventions like the steam engine, electricity or the internet to drive innovation and create new opportunities for the growth of new industries. Only then will good new investment opportunities arise, driving interest rates up again. Government's central banks like the Fed can only react to keep the inflation around 2% by adjusting the interest rates according to the state of the economy (following a rather narrow set of rules with little to no leeway); they are not the problem.

      States could increase their importance in the economy with public works programs like building roads or social redistribution schemes like paid parental leave, but that is politically difficult, and the long term effects of a sustainably more present State in the economy are not entirely clear --although at current historically low interest rates and low overall government debt levels, we're passing on a great opportunity to improve the public infrastructure that would not really crowd out private investment in this context--. But that requires more taxes at the same time as more public spending, so I don't see that happening at the necessary international scale fast enough to make a difference on real interest rates.

      So basically, the lack of good new ideas about what to do with money saved by individuals, corporations and sovereign funds like Saudi Arabia's and Norway's is what keeps interest rates low.

      I hope this helps.
      - An actual economist

  • (Score: 2) by Dunbal on Wednesday July 27 2016, @08:04PM

    by Dunbal (3515) on Wednesday July 27 2016, @08:04PM (#380859)

    I wonder what they hope their business model will be. When people close their bank accounts and move to another bank, the debit/credit cards go with them. Plus when their cash reserves contract, their lending power contracts five-fold or more, whatever model they're currently using. Maybe the government will give them free money again and that's what they're hoping for? Or maybe people are so stupid they will pay to keep money in a bank account. Might as well pay for a safe-deposit box instead. It might be cheaper.

    • (Score: 0) by Anonymous Coward on Wednesday July 27 2016, @08:31PM

      by Anonymous Coward on Wednesday July 27 2016, @08:31PM (#380875)

      Might as well pay for a safe-deposit box instead. It might be cheaper.

      It could be... but did you factor in the cost of the risk of loss?

      Deposit $10,000 in a bank, a fire breaks out, and you still have it in some form or another (even if it requires FDIC to intervene). Put $10,000 in a safety deposit box, a fire breaks out, and it is just gone.

      Quite literally, that infrastructure and security to guarantee your deposits has a cost.

      • (Score: 0) by Anonymous Coward on Wednesday July 27 2016, @08:46PM

        by Anonymous Coward on Wednesday July 27 2016, @08:46PM (#380882)

        I'm not sure I'd call something that can't withstand a normal building fire a safe.

        Then again I have no idea what banks use for their safe deposit boxes.

        Might want to ask before getting one.

        For a long time though I've been wanting to just keep all my cash under my mattress (well, in a fire-proof safe somewhere in my house) except for explicit investments.

        • (Score: 0) by Anonymous Coward on Thursday July 28 2016, @12:54AM

          by Anonymous Coward on Thursday July 28 2016, @12:54AM (#380960)

          According to my friend who works with this sort of thing, the loss that costs the big bank the most money is water damage. Fires are relatively rare and they have fire suppression systems. The smoke damage is usually only in the top few layers. However, the boxes are not usually water proof, especially when you talk about high pressure fire hoses. In fact, his bank is seriously considering giving people waterproof containers when they sign up for a box; it looks like a free bonus, is cheaper than waterproofing everything, prevents smoke damage, and gives them a break on their insurance.

    • (Score: 2) by FatPhil on Wednesday July 27 2016, @10:17PM

      by FatPhil (863) <pc-soylentNO@SPAMasdf.fi> on Wednesday July 27 2016, @10:17PM (#380918) Homepage
      The same has been announced here in Estonia, but only by a couple of big (internationally owned) banks, and only if your balance is over a million. Which is getting to 1%-er levels (we're not a rich country).

      Bank of Matress would have been better than some of my "investments" historically, so yeah, perhaps wodges of cash is the future. Have you seen the price of gold recently?
      --
      Great minds discuss ideas; average minds discuss events; small minds discuss people; the smallest discuss themselves
  • (Score: 0) by Anonymous Coward on Wednesday July 27 2016, @08:53PM

    by Anonymous Coward on Wednesday July 27 2016, @08:53PM (#380885)

    It's time to try Helicopter Money (HM). The risk of hyper-inflation is low because automation and de-facto commie slaves are ready to make more stuff: excess capacity. But consumers don't have enough cash to buy all that new capacity because automation and commie slaves took their jobs. I've read many suggested solutions to the low-inflation/low-interest-rate problem, and HM seems the best solution, at least worth trying out.

    • (Score: 1, Insightful) by Anonymous Coward on Thursday July 28 2016, @02:55AM

      by Anonymous Coward on Thursday July 28 2016, @02:55AM (#381017)

      Three words: Bread and Circus.

    • (Score: 2) by Justin Case on Thursday July 28 2016, @11:55AM

      by Justin Case (4239) on Thursday July 28 2016, @11:55AM (#381141) Journal

      If this is to be viewed as a serious proposal and not just an AC potshot, you need to flesh it out a little. How much free money? Handed out to which people, how many of them? Where should it come from?

      If your plan is to steal if from "the rich", make sure it adds up. How many rich people are you going to plunder? How long can you keep the helicopter flying before "the rich" run out of the money you covet? Or, long before that, what do you plan to do when "the rich" simply take their stuff and go someplace where envious thieves aren't ganging up on them? Or what if they just don't enjoy being plucked and start shooting back? What then?

      I know, you'd be perfectly happy killing "the rich" and eating their corpses. You'd tell yourself that somehow this was just, and overlook the stolen dollars in your own pocket because you're really doing it for the good of everyone right? But what are you going to do after you drain that pool and there are no more "evil rich"?

      • (Score: 0) by Anonymous Coward on Thursday July 28 2016, @01:23PM

        by Anonymous Coward on Thursday July 28 2016, @01:23PM (#381169)

        The Fed created a quite a few $Trillion or so out of thin air to bail out the banks.

        I'm sure they can find a measly few hundred Billions to give to actual people this time. Assuming their rich and powerful masters want them to.

        I'm sure while your busy licking the boots of the rich, hoping they will drop a few crumbs your way. You will stop to think where 'the rich' got their money from in the first place. How will you know whose ass to kiss when the economy collapses and no one is rich anymore?

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

    by martyb (76) Subscriber Badge on Thursday July 28 2016, @12:53PM (#381156) Journal

    I've not seen this discussed here; please forgive me if I missed it.

    There's other option to accepting a negative interest rate on one' deposit... arbitrage. Certainly a much higher risk, but I have no doubt but that some of the larger players (read that the wealthy) are employing this at least to some extent.

    Take some amount of your holdings and deposit them in a foreign institution paying a higher interest rate in a different currency, wait for it to appreciate and/or you need to liquidate, cash out and convert back to original currency. Of course, there will be a cost involved in each of the currency conversions. Also, one runs a risk of guessing wrong on exchange rates and find that the difference in appreciation between the local/foreign currencies ends up being a net loss, as well. OTOH, there may be enough gain that one comes out substantially ahead.

    A variation on this concept is to invest funds in a foreign company where, again, one can possibly gain from currency conversions on each of the buy and sell transactions. Or, one could lose on currency conversions, too.

    Not for the faint of heart, nor but for some fraction of one's investments. Not putting all of one's eggs in a basket and all that.

    Separately, paying a bank or other financial institution to hold one's assets and ensure they are safe has a value, too. Under the mattress exposes one to risk of fire, theft, and so on whereby stored at a bank, one has insured assets (well, at lest in the USA with the FDIC; don't know about other countries).

    --
    Wit is intellect, dancing.
  • (Score: 0) by Anonymous Coward on Thursday July 28 2016, @01:40PM

    by Anonymous Coward on Thursday July 28 2016, @01:40PM (#381175)

    so, is it negative or not? because i'll take/borrow the money if you pay me to do so.

    so reading here, it seems this negative thingy is because there's too much savings in them bank accounts (doing nothing)?

    maybe the problem is that taking a leap and borrowing money to start some form of business/production/industry will back fire because the world has had time to optimize and weed-out darwin-like, so only the "best" and most automated industry survived and it is futile to try and compete with them?