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This negative rates thing is fascinating and scary. Apparently economists have been talking about it for years. I remember reading about the magnetic stripe o

by nissimk 11y ago

This negative rates thing is fascinating and scary. Apparently economists have been talking about it for years. I remember reading about the magnetic stripe on the dollar bills suggestion in the WSJ some time around 2000. The idea is that over time the dollar bill becomes worth less, and this is tracked by the magnetic stripe. Just found this interesting paper from the IMF: https://goo.gl/65CuKF https://goo.gl/65CuKF (scribd) What will happen if they try to do something like this?

toyg 11y ago
It will happen that the rich will get richer, since they are literally paid by central banks to take their money and use it for non-cash assets, which is where their wealth is; and the poor will get poorer, since their economy is cash-based and will not benefit from any interest rate. You'll have artificial inflation of asset values, likely not followed by salary inflation (because the whole point of negative rates is that the economy sucks), so the poor will get priced out even more. Negative rates are really, really bad for everyone except the rich. We shouldn't try make them work, we should find new ways to avoid them.
- lintiness 11y ago
  the reason for negative interest rates is deflation. any poor person earning a wage of any sort is getting a raise just for working.
  - toyg 11y ago
    That compensates itself by shrinking employment numbers, which is what you expect during deflation / crisis (and indeed one of the causes of low rates in general).
jpollock 11y ago
They don't have to do mess around with face value. Individuals and companies with billions of dollars in cash can't really stick it in a mattress and ignore it. They have to find storage, pay rent, heating/cooling/humidity control, security, etc. That costs money. Negative interest rates reflect that cost. Security guards alone would cost round_up(24*7/40) = 5 security guards assuming you only need a single guard (and they never get sick or take vacation), which at a loaded labor cost of at least $150k (low end) is $750k, which is 4% interest on $18.75m. So, under $20m and you're happy to pay the central bank the money to guard your cash.
- madcaptenor 11y ago
  But one guard can guard a lot more than $20m. A normal-size briefcase holds about $1m in $100 bills, (http://www.cockeyed.com/inside/million/million.html http://www.cockeyed.com/inside/million/million.html, https://www.quora.com/How-many-$100-bills-can-you-fit-in-one-of-those-metal-courier-suitcases https://www.quora.com/How-many-$100-bills-can-you-fit-in-one...), or presumably about five times that if you store in 500-euro notes. So in the end people with amounts of cash in the single- or double-digit millions would probably get together and hire one guard instead of many (you don't get rich by spending six figures a year unnecessarily) ... and we start heading back towards reinventing banks.
- deleted 11y ago
  [deleted]
- nkurz 11y ago
  Individuals and companies with billions of dollars in cash can't really stick it in a mattress and ignore it. True. Far better to bury it somewhere remote. See this "news article" from the future about how it plays out: The desert dollar industry January 1, 2021 These days, the desert is swimming in cash... literally. Over the last six months, a booming business in illegal cash storage has sprung up in Nevada, New Mexico, and Arizona where analysts estimate that $30 billion worth of $100 notes have been hidden. By day, smugglers drive deep into the desert, SUVs loaded down with suitcases full of Ben Franklins. Once they've found an ideal spot, they wait till the sun goes down and frantically dig a hole, only to drive away the next morning with nothing but the cache's GPS coordinates and a drone or two to guard it. When asked about the sorts of people staying at her motel these days, Smith shrugs. "I don't ask who they are and they pay cash." ... http://jpkoning.blogspot.com/2015/12/the-desert-dollar-industry.html http://jpkoning.blogspot.com/2015/12/the-desert-dollar-indus...

by nissimk 11y ago

toyg 11y ago

It will happen that the rich will get richer, since they are literally paid by central banks to take their money and use it for non-cash assets, which is where their wealth is; and the poor will get poorer, since their economy is cash-based and will not benefit from any interest rate. You'll have artificial inflation of asset values, likely not followed by salary inflation (because the whole point of negative rates is that the economy sucks), so the poor will get priced out even more. Negative rates are really, really bad for everyone except the rich. We shouldn't try make them work, we should find new ways to avoid them.

lintiness 11y ago
the reason for negative interest rates is deflation. any poor person earning a wage of any sort is getting a raise just for working.
- toyg 11y ago
  That compensates itself by shrinking employment numbers, which is what you expect during deflation / crisis (and indeed one of the causes of low rates in general).

jpollock 11y ago

They don't have to do mess around with face value. Individuals and companies with billions of dollars in cash can't really stick it in a mattress and ignore it. They have to find storage, pay rent, heating/cooling/humidity control, security, etc. That costs money. Negative interest rates reflect that cost. Security guards alone would cost round_up(24*7/40) = 5 security guards assuming you only need a single guard (and they never get sick or take vacation), which at a loaded labor cost of at least $150k (low end) is $750k, which is 4% interest on $18.75m. So, under $20m and you're happy to pay the central bank the money to guard your cash.

madcaptenor 11y ago
But one guard can guard a lot more than $20m. A normal-size briefcase holds about $1m in $100 bills, (http://www.cockeyed.com/inside/million/million.html http://www.cockeyed.com/inside/million/million.html, https://www.quora.com/How-many-$100-bills-can-you-fit-in-one-of-those-metal-courier-suitcases https://www.quora.com/How-many-$100-bills-can-you-fit-in-one...), or presumably about five times that if you store in 500-euro notes. So in the end people with amounts of cash in the single- or double-digit millions would probably get together and hire one guard instead of many (you don't get rich by spending six figures a year unnecessarily) ... and we start heading back towards reinventing banks.
deleted 11y ago
[deleted]
nkurz 11y ago
Individuals and companies with billions of dollars in cash can't really stick it in a mattress and ignore it. True. Far better to bury it somewhere remote. See this "news article" from the future about how it plays out: The desert dollar industry January 1, 2021 These days, the desert is swimming in cash... literally. Over the last six months, a booming business in illegal cash storage has sprung up in Nevada, New Mexico, and Arizona where analysts estimate that $30 billion worth of $100 notes have been hidden. By day, smugglers drive deep into the desert, SUVs loaded down with suitcases full of Ben Franklins. Once they've found an ideal spot, they wait till the sun goes down and frantically dig a hole, only to drive away the next morning with nothing but the cache's GPS coordinates and a drone or two to guard it. When asked about the sorts of people staying at her motel these days, Smith shrugs. "I don't ask who they are and they pay cash." ... http://jpkoning.blogspot.com/2015/12/the-desert-dollar-industry.html http://jpkoning.blogspot.com/2015/12/the-desert-dollar-indus...