Negative interest rates and what it means
February 29th, 2016 at 2:53:31 AM permalink | |
Pacomartin Member since: Oct 24, 2012 Threads: 1068 Posts: 12569 |
Forbes wrote on JUN 2, 2011 "Is There A Difference Between QE And Printing Money?" Here is a brief reminder of the Mexican situation in 1994, which, surprisingly perhaps, has parallels with both what led to the crisis and what is now plaguing the U.S. A massive printing of pesos preceded the steady outflow of capital and the devaluation at that time. Why did the Mexican government allow this to happen? And once financial markets unearthed the policy, why did the central bank not sell bonds and absorb the unwanted peso liquidity? ... http://www.forbes.com/sites/leapfrogging/2011/06/02/is-there-a-difference-between-qe-and-printing-money/#5955c2f1355c |
February 29th, 2016 at 10:23:05 AM permalink | |
petroglyph Member since: Aug 3, 2014 Threads: 25 Posts: 6227 |
The Riksbank hasn't a choice, they are in survival mode, dancing at the end of the strings pulled at the ECB. They are acting like a needle valve on a giant gate in Hoover dam. I have heard this called a "beggar thy neighbor" policy of competitive devaluation. Sweden's economy isn't large enough to handle the inflow of hot money from Europe should their bank offer even a .005% better term than the ECB. http://www.zerohedge.com/news/2016-02-29/all-eyes-again-draghi-what-remains-ecbs-toolbox#comments "Here, according to SocGen, is what is next on the ECB's agenda: A 20bp cut in the deposit rate in March, to -0.5%, mainly in order to steepen the yield curve, likely with an announcement of an immediate or forthcoming introduction of a two-tier charge on excess reserves allowing the ECB to soften the impact on banks by exempting parts of excess reserves from the lowest rate. Our best “guesstimate” of the effective lower bound, based on the experience in smaller currency jurisdictions, is around -0.75%, but there is no technical limit per se;" I bet those bankers at the Riksbank are dancing on a pin. A central banker game of "hot potato", China is playing also. The only reason the US$ hasn't collapsed is, it's the best dirty shirt. It is only a hologram of real money. The last official act of any government is to loot the treasury. GW |
February 29th, 2016 at 11:28:49 AM permalink | |
petroglyph Member since: Aug 3, 2014 Threads: 25 Posts: 6227 |
Citizens United just makes overt what had been in the shadows. Dark money and lobbyists have always controlled our government. I don't support any political party, other than independent. My candidates never win, but I am not so insecure that I have to vote for a winner. My political values are closely in line with Ron Pauls voting record. How can we have freedom or capitalism, with a fiat currency? A representative republic? BAH John McAfee, Libertarian candidate for Potus ;http://www.newsweek.com/john-mcafee-running-president-speaks-newsweek-410536 "To McAfee, nobody—including himself—in the 2016 presidential race was ready for the White House, but McAfee says he is the best America’s got." The last official act of any government is to loot the treasury. GW |
February 29th, 2016 at 1:06:23 PM permalink | |
petroglyph Member since: Aug 3, 2014 Threads: 25 Posts: 6227 | http://www.zerohedge.com/news/2016-02-27/global-run-physical-cash-has-begun-why-it-pays-panic-first#comments "Back in August 2012, when negative interest rates were still merely viewed as sheer monetary lunacy instead of pervasive global monetary reality that has pushed over $6 trillion in global bonds into negative yield territory, the NY Fed mused hypothetically about negative rates and wrote "Be Careful What You Wish For" The last official act of any government is to loot the treasury. GW |
February 29th, 2016 at 3:13:10 PM permalink | |
Pacomartin Member since: Oct 24, 2012 Threads: 1068 Posts: 12569 |
In July 2009, Sweden's central bank, the Riksbank, set its policy repo rate, the interest rate on its one-week deposit facility, at 0.25%, at the same time as setting its overnight deposit rate at -0.25%. Subsequently the repo rate has moved into zero and negative numbers. Date ........ Repo-rate Days 10/28/2014 0.00% 491 02/12/2015 -0.10% 384 03/18/2015 -0.25% 350 07/02/2015 -0.35% 244 02/11/2016 -0.50% 20 In 2009, the exchange rate was above 10 kroner to the euro. Now the euro is about is 6.656% weaker @ 9.3342 SEK/EUR. I don't see why the Riksbank just doesn't give up and peg the SEK at 10 to the EUR. Sure they lose monetary policy freedom, but right now they have to spend hundreds of billions of crowns just trying to keep the currency from getting stronger. I figure they can print a token couple of million 500SEK banknotes, and then just let 50EUR banknotes creep into the country as unofficial currency. The 50EUR banknotes would just serve as a physical reminder that Sweden has (at least temporarily) given up monetary policy. 2008 Week 42: 9.8149 2008 Week 43: 10.0045 2008 Week 44: 9.9122 2008 Week 45: 9.9347 2008 Week 46: 10.0503 2009 all weeks > 10.0 2010 Week 6: 10.0477 2010 Week 7: 9.8524 |
March 3rd, 2016 at 11:39:06 AM permalink | |
petroglyph Member since: Aug 3, 2014 Threads: 25 Posts: 6227 | https://confoundedinterest23.wordpress.com/2016/03/03/bizarro-world-15-european-countries-now-have-negative-2y-sovereign-yields-and-japan/ “ECB Studies Stimulus Options That Won’t End Up Hurting Banks.”, then who do they want it to hurt? The last official act of any government is to loot the treasury. GW |
March 3rd, 2016 at 4:12:15 PM permalink | |
Pacomartin Member since: Oct 24, 2012 Threads: 1068 Posts: 12569 |
I sent the following inquiry to the Riksbank to ask them where the production quantities are published (fairly routine information from most central banks). They basically said that is a state secret. As Sweden's central bank goes deeper and deeper into negative interest rates, the private banks may start to pass along negative interest rates to consumers (probably in the form of fees). Swedish citizens who have prided themselves on not handling dirty banknotes when buying their pizza and paying for most items, will suddenly remember that cash also functions as a "store of value". But if the banks do what I think they are going to do, and eliminate all but a token number of banknotes over 200SEK=$23.50 from circulation, people may suddenly be very interested in how many 500SEK and 1000SEK banknotes are being held at the central bank. Property prices rocket despite crash warning 14 Oct 2015 Sweden's housing market is continuing to heat up, despite warnings from top economists that the situation is a bubble waiting to burst. http://www.thelocal.se/20151014/property-prices-rocket-despite-crash-warning
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March 3rd, 2016 at 4:43:57 PM permalink | |
petroglyph Member since: Aug 3, 2014 Threads: 25 Posts: 6227 | Kudos to you for inquiring. At least they gave you an answer : )
I had heard 100 year mortgages were popular, so I looked after you posted. It appears that home mortgages can go on much longer. http://qz.com/123411/swedish-regulators-want-borrowers-to-pay-off-their-mortgages-faster-like-in-less-than-140-years/ I had seen in the past that some were suggesting hundred year mortgages in the US. The last official act of any government is to loot the treasury. GW |
March 3rd, 2016 at 11:23:11 PM permalink | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pacomartin Member since: Oct 24, 2012 Threads: 1068 Posts: 12569 |
In Japan in the real estate boom in the late 80's and early 90's people were taking out 100 and 120 year mortgages in Tokyo. I think many people are still making payments on these loans today nearly 30 year later. People are still "upside down" on their mortgages today. The preferred way to finance a massively expensive home today in the USA is "interest only" for a fixed number of years, and then the principal is due. Actually that was the way homes were financed in the 19th century. It doesn't make too much sense for a $100K loan.
Home interest is tax deductible for up to a million dollars in principal. So at low interest rates, ultra long loans make some sense, and they don't come with the fear associated with the balloon payment of the interest only loan.
Her answer seemed so innocent. We don't tell you because we don't want you to know. Well government does not want to tell us a lot of things. |
March 4th, 2016 at 2:58:35 AM permalink | |
AZDuffman Member since: Oct 24, 2012 Threads: 135 Posts: 18136 |
Back in the boom there were some weird terms. I saw one 100 year and several for 40 instead of 30. The issue as you point out is after a certain period the principal falls by so little that more term does not matter much. At 100 years all you are really doing is sort of locking in your rent payment with the bonus that you get any increase in value for yourself and not a landlord. If it goes up your heirs get a nice little bonus. If inflation is really bad they could even eventually be able to pay it in full. If deflation his you own not a house but a coffin, you are there forever. It is hard to imagine deflation with all the cheap money we have sloshing around, but we seem to be near that being the case. Same as in the 1970s it was previously thought you could not have stagnant growth and inflation at the same time. My advice is get your personal debt as low as possible for leveraged people and corporations will get slaughtered if we get a deflation trap. The President is a fink. |