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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: 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
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  • (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.

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    • (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.

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      • (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.

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