Negative interest rates and what it means

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February 11th, 2016 at 5:18:05 PM permalink
AZDuffman
Member since: Oct 24, 2012
Threads: 108
Posts: 8074
The general public has no idea what a dangerous situation we are in here.

I doubt 1 in 10 people really know what central banking is and how money works. They hear the term, but do not realize what happens. That banks have banks is too much to handle. But banks do have banks. The central bank loans them money and takes their deposits. They even require a certain deposit level.

For loans the central banks raise and lower rates to member banks. In the USA the loan rate has ranged from a recent high of 6% in late 2000 to a low of 1% after the Panic of 2008, recently raised to 1.25%. In other words, Citibank gets 1.25% on money it loans to other banks.

This rate is raised or lowered to encourage lending or borrowing. At 6% Citi will borrow less and hence put less out to consumers, at 1% they will borrow and lend out more. This is one way they throttle the economy. But what has been happening is that even at 1% the banks don't want to borrow sometimes. People like me pay cash for a car loan and Citi needs to borrow less so there is no market.

My attitude is that I just do not want to buy, what are they gonna do, make me borrow? Well, they are trying! We now have several central banks with a negative deposit rate! (see link) Bank drops a billion in the central bank and it is costing them $20 million a year!

Will your local bank eat this? Not likely! Sooner or later you will get charged for letting money sit in your account. The US Fed is eyeing this idea, thought we are not there yet. Prepare yourselves, if we are at the point where people will not borrow even at ultra-low rates we are seeing the end of the old system.
The man who damns money has obtained it dishonorably; the man who respects it has earned it
February 11th, 2016 at 7:28:03 PM permalink
Wizard
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Member since: Oct 23, 2012
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Maybe a world where people live within their means isn't such a bad thing. Whenever anybody declares bankruptcy, it is ultimately society that pays for it.
Knowledge is Good -- Emil Faber
February 12th, 2016 at 2:43:35 AM permalink
AZDuffman
Member since: Oct 24, 2012
Threads: 108
Posts: 8074
Quote: Wizard
Maybe a world where people live within their means isn't such a bad thing. Whenever anybody declares bankruptcy, it is ultimately society that pays for it.


It should be morally better, but it will really change things in ways we will not know. We have had this system 100 years now. The shift will be huge.
The man who damns money has obtained it dishonorably; the man who respects it has earned it
February 12th, 2016 at 10:49:54 AM permalink
Fleastiff
Member since: Oct 27, 2012
Threads: 54
Posts: 6038
Swiss banks charged interest on savings accounts ... but they were good bankers.
February 12th, 2016 at 11:58:35 AM permalink
Pacomartin
Member since: Oct 24, 2012
Threads: 822
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Quote: AZDuffman
Will your local bank eat this? Not likely! Sooner or later you will get charged for letting money sit in your account. The US Fed is eyeing this idea, thought we are not there yet. Prepare yourselves, if we are at the point where people will not borrow even at ultra-low rates we are seeing the end of the old system.


There are many people who believe that the idea of fees to keep money is what is behind the Swedish Central Bank's greatly reducing the currency in their country. They have reduced the currency supply down 44.2% from it's peak eight years ago.

Without cash as a ready alternative, people cannot easily drain their bank accounts.

New Swedish banknotes


The current 20, 50 and 1000 kronor notes, originally issued in 1986 and modified over the last decade, will remain legal tender until June 30, 2016. The 100, and 500 kronor notes will retain their validity until June 20, 2017, after which time they can only be redeemed by post; there will also be a fee of 100 kronor charged by the National Bank for this service, with no limit on the amount of notes redeemed per transaction.

On the face of it, the new banknotes make people think that the government of Sweden has renewed their commitment to cash. However, they are keeping production statistics a secret. It looks like they are printing far fewer banknotes than they are destroying, so while the notes are new, the cash supply is plummeting.

The Euro Area had an opportunity to do this at the turn of the century. Because most countries produced a lot of cash in 1999 because of Y2K fears, by the end of 2000 the Euro countries had a record 380 billion euros in original currency banknotes using the fixed irrevocable exchange rate to the Euro. By the end of 2001 that number was reduced to 270 billion euros as people scrambled to turn their banknotes into fixed assets to hide the money from tax collectors. But at the time the concept was to produce as much cash as possible. In 18 months they were back up to 380 billion euros, and finally passed 1 trillion euros in banknotes by the end of 2014.
February 12th, 2016 at 3:43:52 PM permalink
AZDuffman
Member since: Oct 24, 2012
Threads: 108
Posts: 8074
Quote: Pacomartin
There are many people who believe that the idea of fees to keep money is what is behind the Swedish Central Bank's greatly reducing the currency in their country. They have reduced the currency supply down 44.2% from it's peak eight years ago.


Excellent point! There is a war on cash in western nations. Mostly just to make sure the people toe the state line. But think about it. Inflation takes 2-3% of our money at a minimum a year. This is by design. As it slows the state tells you that you musts pay a fee to park your money. Then they make it impossible to keep cash in your home so you must pay. Hello, is anyone watching?
The man who damns money has obtained it dishonorably; the man who respects it has earned it
February 12th, 2016 at 4:22:02 PM permalink
Evenbob
Member since: Oct 24, 2012
Threads: 118
Posts: 14593
Quote: AZDuffman
Then they make it impossible to keep cash in your home so you must pay. Hello, is anyone watching?


The only time I ever see cash or use
cash is in the casino. I never use it
anywhere else. I can't remember the
last time I saw somebody pay cash
at checkout. You see it in restaurants
as tips left on the table, but I only
eat out 3-4 times a year.
If you take a risk, you may lose. If you never take a risk, you will always lose.
February 12th, 2016 at 4:50:30 PM permalink
rxwine
Member since: Oct 24, 2012
Threads: 130
Posts: 6321
Quote: Evenbob
The only time I ever see cash or use
cash is in the casino. I never use it
anywhere else. I can't remember the
last time I saw somebody pay cash
at checkout. You see it in restaurants
as tips left on the table, but I only
eat out 3-4 times a year.


I think it is Iceland which is transitioning to a cashless state.

While I don't mind such changes, I want to know that there are backup plans, instead of finding out no one planned for some instance where the current system goes down for extended periods, or other unforeseeable things.

I still use cash and debit/credit pretty much equally.
Nobody learned anything from the global financial crisis.
February 12th, 2016 at 4:56:15 PM permalink
Face
Administrator
Member since: Oct 24, 2012
Threads: 61
Posts: 3289
Quote: Evenbob
The only time I ever see cash or use
cash is in the casino. I never use it
anywhere else. I can't remember the
last time I saw somebody pay cash
at checkout. You see it in restaurants
as tips left on the table, but I only
eat out 3-4 times a year.


I've started going back to cash. Despite my feelings about fiat currency, it feels even weirder (worse?) to sacrifice my time for some numbers in a database. I started to lose touch, it sort of started to become less real.

That and one of my regular stops on my route makes me leave with $0.92 in change every day. My huge change jar fills up much faster, and a full jar is enough for quite the toy. Last time Pops filled it to 3/4 he bought his Ruger Super Blackhawk. A full jar would likely pay for my race season.

It's the closest I got to a savings account =p
Be bold and risk defeat, or be cautious and encourage it.
February 12th, 2016 at 6:00:00 PM permalink
Evenbob
Member since: Oct 24, 2012
Threads: 118
Posts: 14593
Quote: Face


It's the closest I got to a savings account =p


For years I filled a jar and it was always
the same every year. Around $500. I
like logging into my debit account and
seeing exactly what I bought. My wife
uses debit, credit and cash. She saves
even the smallest receipt and enters it
into Quicken a few times a week. Too much
work for me. She does have a 825 credit
rating, though. Or higher. I have a few CC's,
I could care less about having more.
If you take a risk, you may lose. If you never take a risk, you will always lose.
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