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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, 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_

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  • (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) Subscriber Badge 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.

    --
    I browse at -1 when I have mod points. It's unsettling.
  • (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) Subscriber Badge 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?

        --
        Write your congressman. Tell him he sucks.