Negative interest rates and what it means

Page 2 of 19<12345>Last »
February 13th, 2016 at 5:31:54 AM permalink
AZDuffman
Member since: Oct 24, 2012
Threads: 110
Posts: 8660
Quote: Evenbob
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 925 credit
rating, though.
Or higher. I have a few CC's,
I could care less about having more.


825?
The man who damns money has obtained it dishonorably; the man who respects it has earned it
February 13th, 2016 at 6:19:28 AM permalink
Pacomartin
Member since: Oct 24, 2012
Threads: 851
Posts: 10166
Quote: rxwine
I think it is Iceland which is transitioning to a cashless state.


Iceland was at one point the closest society to cashless in the world. In 2001 they were circulating nine billion Icelandic crowns or 105 million for 285,000 people or 369 per capita. But after every bank in the country crashed at the same time, the government was forced to start recirculating cash again. They are now circulating 54 billion Icelandic crowns or roughly 1200 per capita.

Sweden is the only country to reduce it's cash in circulation by over 40% in the last eight years. It's very rare for a country to keep it's cash supply steady, as almost every country increases cash.
February 13th, 2016 at 3:25:36 PM permalink
Evenbob
Member since: Oct 24, 2012
Threads: 121
Posts: 15613
Quote: AZDuffman


825?


Yeah. But I think it's more like 835
now. She knows exactly how to keep
it there, with a perfect ratio of credit
that you have to credit that you use.
She's fanatical about it. When she
bought a new car last year, they told
her it was the highest they've ever
seen, and they see hundreds a week.
If you take a risk, you may lose. If you never take a risk, you will always lose.
February 13th, 2016 at 4:52:20 PM permalink
Pacomartin
Member since: Oct 24, 2012
Threads: 851
Posts: 10166
Quote: AZDuffman
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.


Sweden had almost 50 million of these banknotes (worth $120 apiece today) circulating. But then in 2006 they issued a version with a foil strip to prevent counterfeiting . BUT! THE SWEDISH CENTRAL BANK was clever enough to produce only about 10 million of these new banknotes. Since the banks have stopped handling cash at teller windows, it was difficult to get any new ones since they were not put into the ATMs.



The foil strip in the Swedish money was the basis for the design chosen for the security ribbon on the future US $100 color bill.

Slowly Sweden destroyed the old banknotes without the foil strip until they had only about 14 million of the old ones left. Then they declared that the old notes would be invalid by the end of 2013.

Now they are doing it again. On October 1, 2015 they issued a new banknote and declared that the old ones would be invalid on June 30,2016. Currently there are 1.228 million new notes and 2.697 million old notes

So they have reduced a denomination with 50 million in circulation to a "curiosity" where they may circulate about 2 million (or one banknote for 5 people). In comparison there are about seven $2 banknotes circulating per person in the USA (all stored away in "private hoards").

Quote: AZDuffman
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?


Swedes seem strangely unafraid this will happen. They think they are very modern. Plus they are having a real estate boom, and cash is considered by most people under the age of 40 as a nuisance that old people like.

Of course, Icelanders were the same way until all the banks went belly up at once.
February 13th, 2016 at 8:31:09 PM permalink
AZDuffman
Member since: Oct 24, 2012
Threads: 110
Posts: 8660
Quote: Pacomartin

Swedes seem strangely unafraid this will happen. They think they are very modern. Plus they are having a real estate boom, and cash is considered by most people under the age of 40 as a nuisance that old people like.

Of course, Icelanders were the same way until all the banks went belly up at once.


The words "young" and "dumb" get used together for a reason. Of course Sweden is so socialized they are conditioned to just let government run their lives to every detail as it is.

What should be just as scary is to wonder why the world is floating in cheap money yet perched on recession and in some cases deflation or at least near it. I doubt the game is over, but we may be entering the last 10-20 years of it before a new kind of monetary system has to rise up.

And the need for a new system may be the case. Currently we are just over 100 years of what we now have. In the fourth generation of population. Sooner or later every system must change. In the 1800s precious metals backed things and the money supply could only expand when more were found. This ended because as the population grew and the money supply did not well everyone gets poorer as there is a shortage of money. After 1913 we had the Fed and fractional banking. The money supply could be throttled at near-will. The price of liquidity was inflation.

Now what comes?
The man who damns money has obtained it dishonorably; the man who respects it has earned it
February 14th, 2016 at 12:43:13 AM permalink
Pacomartin
Member since: Oct 24, 2012
Threads: 851
Posts: 10166
Quote: AZDuffman
Now what comes?


Well one variation is the substitution of a different standard for your currency.
1 EUR = 9.45737 SEK
20 EUR = 189.147 SEK

Hypothetically a shop geared toward tourists at a ferry stand in Sweden may be selling a nicknack or dinner for 200SEK or 20 EUR. Now the shopkeeper knows that 20 Euro banknote is worth less than a 200SEK, but his profit margin is high enough that he would rather get the sale than worry about the 5.4% difference in currency value. Most places near the border in Mexico will gladly take US dollars since they would rather retain their savings in the stronger currency.

Now Sweden, like most countries has 81.5% of the value of it's banknotes circulating in the 500SEK and 1000SEK denomination. But if they are successful by next year in reducing most of their currency to chump change of denominations 200SEK or less, and electronic transfers take care of almost all but the smallest of transactions, then they are free to hook their currency up to any standard. If they are hooked to Euros, your phone app could show the price in Swedish Crowns or Euros. You could key in the transaction amount in Euros, and it will convert to Swedish Crowns. And since the rate is fixed, it wouldn't change every day.

Sweden could theoretically return it's currency to gold standard on which it was originally based. Of course back then the Danish, Norwegian, and Swedish crowns were fixed at 2480 crowns per kilogram of gold, and now it is 3,344,000 crowns per kg of gold for Sweden.

Ecuador exchanged it's currency, the sucre, for dollars in the year 2000. At the time it's biggest banknote was 50,000 sucres=$2. Because Ecuador still makes it's own coins, including the dollar coin, most people in the country are using coins.


The Sistema de Dinero Electrónico kicked off in Ecuador by allowing qualifying users to set up accounts, and it will begin acting as a real means of transaction this month. The South American nation of 16 million will host the first-ever state-run electronic payment system. (Other countries, such as Sweden, use digital currencies widely, but they're not state-sponsored.) But the Ecuadorean government says the scheme is designed to support its dollar-based monetary system, not replace it. - CNBC 9 Feb 2015

While that may be their intention right now, once the bulk of the transfers are done electronically, they will be free to convert to another standard, perhaps the Canadian dollar or the Euro or even back to silver (1 XAG = $15.76 ).
February 14th, 2016 at 4:09:39 AM permalink
odiousgambit
Member since: Oct 28, 2012
Threads: 92
Posts: 2315
if you want to get charged a negative interest rate now, open a checking account about anywhere and don't keep much money in it.

I'm not following too good the argument that negative interest rates would mean a financial crisis. Countries are already doing it. It certainly emphasizes what is already the case, that putting your money into govt. bonds [especially short term] may be safe, but you can't make any money doing it. The risk of capital depreciation is worse than the low rates earned.

I don't deny the development is a sign of economic weakness world wide.

BTW, a trivia question,

What gets the backing of the 'full faith and credit' of the US government?

*Treasury Bills
*FDIC-covered amounts in a bank account
*both of these

only Treasury Bills get the full faith and credit. FDIC protection theoretically could dissipate its own funds. As a practical matter, considering the likely reaction of the legislature to FDIC default, it is unlikely save the most extreme circumstances that there really is a difference.
Mustard:You like Kipling, Miss Scarlet? Sure, I'll eat anything [from movie]
February 14th, 2016 at 5:48:19 AM permalink
AZDuffman
Member since: Oct 24, 2012
Threads: 110
Posts: 8660
Quote: odiousgambit

I'm not following too good the argument that negative interest rates would mean a financial crisis. Countries are already doing it. It certainly emphasizes what is already the case, that putting your money into govt. bonds [especially short term] may be safe, but you can't make any money doing it. The risk of capital depreciation is worse than the low rates earned.


The crisis part is in that it will remove money from circulation which will eventually cause deflation which could be a viscous circle. With the current war on cash worldwide it gets worse.

Say you get a bonus from your boss of $10,000 but the bank charges a negative 5% interest rate to keep money in accounts. (5% is way higher than what central banks are charging, but remember banks always mark up for profit.) So what do you do to avoid a loss of $500? Smart consumers will start trying to pre-pay as many services as possible, from cable TV to their property taxes.

However, the cable company and your local tax collector might refuse to take this money since they will then be the ones taking the 5% hit. You could decide you might as well load up on supplied from rice to toilet paper. As you do the store and their suppliers will be playing the same game of hot potato with the funds since nobody wants to take the loss.

Now it gets interesting. So in the end you decide to or are forced to eat most of the $500 loss. Now you only have $9500 to spend! You figure this time you will go the hard goods route to preserve value, but this year you can buy $500 less of toilet paper. Everyone can buy less because they all took the hit. The store buys fewer rolls and lays off one person as they are not needed. Scott paper lays a few off in the mill. The trucking company lays a few off, less diesel fuel is needed, badda-beepa-da-boppa-da-boop.

New production is not built since it will be cheaper to do it later. Less new production is needed anyways since people will have less money to spend in the first place. This has been going on in Japan for over 25 years now.

It does not cause a "crisis" in the same way as the Panic of 2008 was a crisis. More like the economy gets a long-term very bad case of the flu. Consider that most people buy houses based on the idea that they will be making more in a few years. As I have explained above, if this keeps up people will not make more and may very well make less. What kind of house would you sign a note for if that was the case?
The man who damns money has obtained it dishonorably; the man who respects it has earned it
February 14th, 2016 at 8:52:32 PM permalink
Wizard
Administrator
Member since: Oct 23, 2012
Threads: 204
Posts: 4838
This is a little off topic, but since my bank account pretty much pays no interest, I like to pay my utility bills months in advance. I hate to pay enormous late fees because I was out of town or just lost a bill. So, I'll pay about six months in advance when I owe anything.

What annoys me is many utilities now send me back a check for whatever I overpaid. I suspect they do this because

1. They want me to potentially fall into the late fee trap, and/or
2. They hope the check will get lost and I'll never cash it.

So, yes, I'm angry that creditors will screw their customs up the *&# with a bloom handle if they are one day late on a payment, but they won't hold your money for free.
Knowledge is Good -- Emil Faber
February 14th, 2016 at 9:11:24 PM permalink
kenarman
Member since: Oct 24, 2012
Threads: 7
Posts: 1320
Quote: Wizard
This is a little off topic, but since my bank account pretty much pays no interest, I like to pay my utility bills months in advance. I hate to pay enormous late fees because I was out of town or just lost a bill. So, I'll pay about six months in advance when I owe anything.

What annoys me is many utilities now send me back a check for whatever I overpaid. I suspect they do this because

1. They want me to potentially fall into the late fee trap, and/or
2. They hope the check will get lost and I'll never cash it.

So, yes, I'm angry that creditors will screw their customs up the *&# with a bloom handle if they are one day late on a payment, but they won't hold your money for free.


I wish my phone company would issue a cheque. I once accidentally wrote a cheque for the over a thousand dollar company bill against my $100 personal phone account. The made it so difficult to get a refund I just left it in place until it was used up over a year later.
"but if you make yourselves sheep, the wolves will eat you." Benjamin Franklin
Page 2 of 19<12345>Last »