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posted by janrinok on Saturday February 07 2015, @03:57AM   Printer-friendly
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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  • (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]
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