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Wild rider 20.12.20 05:14 am

Negative interest rate

UPD Or a tale about how banks are trying to preserve the function of money.

Recently in Denmark, mortgage borrowers received their first payments from banks - a reward for ... using a loan.

It sounds strange, but the premium for using the loan is a direct consequence of the fact that the central banks of some countries set negative interest rates several years ago. Banks and borrowers are still trying to get used to the fact that the interest rate on a loan can be -0.0562%, for example, like the Danish Hans-Peter Christensen, writes the Wall Street Journal (translated by Vedomosti).

In the last quarter, the Dane received 249 kronor ($ 38) from the bank. “My parents said that I have to hang this receipt in a frame to prove to future generations that this really happened,” says Christensen.

With the help of negative interest rates, central banks are trying to stimulate the economy by making loans more affordable. Such measures have already been taken by the European Central Bank, Bank of Japan, Switzerland, Sweden and Denmark. For the last three, negative rates are not just an economic stimulus, but a means to adjust the exchange rate of national currencies against the euro.
https://geektimes.ru/post/274536/

An interesting situation has developed in the world of economics. Even Karl Marx predicted in capitalism the tendency of the rate of profit to fall. But even Marx could not imagine that percentages could turn negative.

The EU has already introduced a negative interest rate to stimulate the real sector of the economy. Banks will have to pay for keeping their reserves in vaults. Deflation has set in in Europe. This is not beneficial for the authorities, they need inflation so that citizens feel a tendency to depreciate money, and they, in turn, must invest it somewhere. But since citizens decided to invest mostly in deposits in banks (purchasing power has decreased since 2013), they had to withdraw money from banks so that they would start spinning continuously, and depositors would not lose their money (under the OPS policy). Gold prices also had to be increased (upd: for a short time)

The United States has long been pursuing a policy of lowering the interest rate. And she's almost at zero. The aim of lowering interest rates, as in the EU, is to create an impulse for economic growth. However, the targeted lowering of interest rates encourages the creation of a speculative demand for assets. Demand for debt is high, while real interest rates remain negative. Negative government yield bonds leads to a decrease in interest payments on government. debt.
By the way, it is already 60 trillion.

Perhaps we are living in historical times, gentlemen.
42 Comments
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ofecer007 20.12.20

And you were not mistaken in the forum?)

W
Wild rider 20.12.20

stalker7162534
Yes, even into the fence, just not to the bank in the west, otherwise you will lose them.
Logically, even in the bonds of factories it will not be necessary to invest, since legal entity and physical individuals will get paid for loans anyway, lol. Those. banks will pay them extra for loans, thereby stimulating the economy.

ofecer007
Subforum - Society. I was not mistaken.

W
Wing42 20.12.20

Wild Rider
I read and for the first time in my life felt like a stupid peasant who did not see money.

W
Wild rider 20.12.20

Wing42
Better read about this chaos. Financial tycoons give out the money, trying to preserve the very function of money.
https://geektimes.ru/post/274536/

s
stalker7162534 20.12.20

Wild Rider
Wild Rider wrote:
In the real economy, not in bonds I mean.
... Invest
in tangible assets.
Once again, I humbly ask you to explain - how, how. If not in bonds, and not in banks?
Where do you think the bank or the bond issuer get the money from to pay the depositors' profits?

Wild Rider wrote:
Financial tycoons give out the money, trying to preserve the very function of money.
Haven't you read about the meaning of negative interest? The population accumulates too much - that is, it does not buy goods, but puts a part of its salary in banks. As a result, goods remain unsold, therefore, production must reduce the production of goods and .... lay off workers. We get (see above) a crisis of overproduction.

M
Mage Hermit 20.12.20

We also have this garbage in Israel. But I like my expenses are planning (such a habit)
so I don’t go into the minuses. Although the bank has already poured off my loan for a long time.

W
Wild rider 20.12.20

stalker7162534 wrote:
Once again, I humbly ask you to explain - how, how. If not in bonds, and not in banks?
I didn't mean the financial sector. In real goods with subsequent leasing, for example. This is the safest option and with the benefit of the economy ... The income on bonds may be in an already depreciating currency (what surprises the massive FOPS will bring - it is anyone's guess).
In real estate for agriculture (rent).
Into precious metals.
In what has always been in demand.

stalker7162534 wrote:
The population accumulates too much - that is, it does not buy goods, but saves part of their salaries to banks.
That's exactly what everyone does. Hence, there is a shortage of money supply in the real economy. But the financial tycoons themselves created this situation, they also keep a lot of dough, billions of dollars on deposits, in bonds.

s
stalker7162534 20.12.20

Wild Rider
Wild Rider wrote:
Money supply shortage in the real economy.
What is it, what happens in this case? If money is added to the turnover of goods, inflation begins. And again I will ask again
How do you think, where does the bank or the bond issuer get the money from to pay the depositors' profits?

W
Wild rider 20.12.20

stalker7162534 wrote:
Is it possible in more detail, what is it, what happens in this case?
There is stagnation (stagnation) in the economy. You yourself wrote the symptoms above. Production is falling, there are not enough jobs, and so on.
Inflation may not start, if you just pour money into the economy, there should be an increase in the prices of goods (an increase of 2% or more, if less than 1, then this is deflation). But the rise in prices during stagnation can be called stagflation.

stalker7162534 wrote:
How do you think , where does the bank or the bond issuer get the money from to pay the depositors' profits?
The bank lives at the expense of loans issued (payments on them) and at the expense of refinancing from the Central Bank, basically.

s
stalker7162534 20.12.20

Wild Rider
This means that depositors (or buyers of bonds) give their money to the bank (issuer), and that, having collected many small deposits, credits the one who will then repay the debt with interest. Who is this? Who can take a lot of money and then return it with interest? This interest will be a huge amount.
Who is this?
This is probably the real economy. In the sense of entrepreneurs who use the borrowed loans for the development of production in order to profit from the sale of goods, and be able to return the loan.

SpoilerRefinancing of the Central Bank is a bank taking a loan from the Central Bank, which must still be repaid with interest. So your answer is not correct.

W
Wild rider 20.12.20

stalker7162534
"This is probably the real economy."
If there are bonds, then there is a market for them. The subsequent resale of these bubbled bonds is no longer a real economy. This is why bonds are dangerous.

"Refinancing of the Central Bank is a bank taking a loan from the Central Bank, which must still be repaid with interest."
And what about the interest? Everyone lives in debt, but the bank's reserves are replenished at the expense of the interbank loan. My answer is correct. Moreover, emission centers save the largest banks from bankruptcy (except for those cases when everything is completely bad and unthinkable amounts are required, see Deutsche Bank), so depositing in a bank is a safer option than investing in bonds of another issuer that issue valuable paper. Especially in a deflationary environment. And one of the main reasons for all this outrage (deflation) is the excessive accumulation of funds on the stock exchanges (where bonds are traded).

s
stalker7162534 20.12.20

Wild Rider
I decided to invest in the real economy and bought bonds. Then you decided to invest in the real economy and decided to buy bonds.
And I badly needed money, I sold you bonds.
The money that the issuer received is invested in the real economy. And this money works, fulfills its purpose - it helps to change.
And the fact that then Vasya sells bonds to Fedya, and Fedya sells these bonds to Petit is their own business.
Wild Rider wrote:
the bank's reserves are replenished at the expense of the interbank loan. My answer is correct.
No. The question was where did the banks take the money to return money to depositors with interest. That is, where does the bank profit from? If you borrow (and even at interest), then this is not profit. Payment of interest will be a loss for you. But if at the same time you bought a medicine with borrowed money and did not die, then the loan turned out to be a blessing for you. You were forced to take out a loan. Similarly, refinancing is a necessary measure, but not a source of profit.

W
Wild rider 20.12.20

"And the fact that then Vasya sells bonds to Fedya, and Fedya sells these bonds to Petit is their own business."
It's a snowball. As a result, it will happen that the price of the bond will be higher than its yield. There will be no demand for it - you will not receive money for its subsequent resale. And money will be needed to pay off some debt, for example ...

"No."
I wrote that banks live in debt all the time. No? Well enlighten me if I'm wrong.
There are also carry-trade schemes, games in the currency markets. I don't know the amount of profit from them.

s
stalker7162534 20.12.20

Wild Rider
Snowball for Vasya and Petit. And the money is invested in the real economy. It is so?
Wild Rider wrote:
I wrote that banks live in debt all the time. No?
You wrote
Wild Rider wrote: The
bank lives off the loans issued (payments on them). The
bank issues loans not only to individuals for the purchase of a car (these are trifles), but the main task of banks is loans to entrepreneurs and corporations.

C
Crociato 20.12.20

So the bank issues loans at a higher interest rate than it takes from the Central Bank. Even if the Central Bank set a negative rate of -0.2%, then the bank itself will give loans at -0.1%, in the difference between their profit rates. As I understand it.

W
Wild rider 20.12.20

stalker7162534
Nested. But the point is, bonds without a bubble bursting secondary market simply cannot exist. Question: is it worth it if you have regular loans?

stalker7162534 wrote: The
bank issues loans not only to individuals for the purchase of a car (these are trifles) but the main task of banks is loans to entrepreneurs, corporations.
I and nat. and legal. persons meant. In fact, there is only one profit - payment of loans. Real economy: the average citizen takes a loan to buy something, an entrepreneur takes money to run his business.

Crociato
"then the bank itself will give loans at -0.1%"
In theory, under normal conditions, banks should pay interest to the central bank. And a minus in rates is already an outflow of capital from banks. But the point is true about profit.

s
stalker7162534 20.12.20

Wild Rider
Wild Rider wrote:
bonds without a secondary market with bursting bubbles just can't exist
Who told you this?

W
Wild rider 20.12.20

stalker7162534
This is logical. The secondary securities market cannot exist without the primary one, just like vice versa. Even in 19th century Russia, when bonds appeared there, they immediately began to resell them. This is a natural development of the stock market, its essence.
It's even worse with stocks, by the way: the main income from stocks comes not from dividends, but from their resale.

k
killer19922014 20.12.20

the growth of well-being in many countries of the world just depends on the Central Bank rate, 0-4% is good, 10-1000% is bad, in Russia in the 90s the rate was about 1000%

s
stalker7162534 20.12.20

Wild Rider
The Primary Market is the first sale of an issued security. Their issue does not depend on the possibility of resale of the security. Even if no one buys securities for resale, there will always be those who buy securities for dividend purposes.
Obviously, if the price of securities has increased significantly, then their sale will be more profitable than the previously expected dividend. But this does not mean that the "main" income is from resale. Yes, we see that the shares of some high-tech companies have been steadily growing in value for many years, the same Microsoft for example. But the value of these securities is probably growing from an increase in corporate profits.