Stories
Slash Boxes
Comments

SoylentNews is people

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."

 
This discussion has been archived. No new comments can be posted.
Display Options Threshold/Breakthrough Mark All as Read Mark All as Unread
The Fine Print: The following comments are owned by whoever posted them. We are not responsible for them in any way.
  • (Score: 5, Informative) by c0lo on Saturday February 07 2015, @08:23AM

    by c0lo (156) 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
    Starting Score:    1  point
    Moderation   +3  
       Insightful=1, Informative=2, Total=3
    Extra 'Informative' Modifier   0  
    Karma-Bonus Modifier   +1  

    Total Score:   5  
  • (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.