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That makes some intuitive sense, but I would raise two problems for that thought experiment. Firstly, I very much doubt you will see negative rates within cons

That makes some intuitive sense, but I would raise two problems for that thought experiment. Firstly, I very much doubt you will see negative rates within consumer or retail products, or even attached to the rates seen by pension funds who usually don't sit on cash held in cash saving accounts held with the Fed. Secondly, I would think that if I were pension fund manager or an individual saving for retirement and I somehow encountered negative rates that persisted for cash savings, I would look for other types of investments that offer higher returns, or in the case of individuals, just spend the money as going to the cinema has greater utility than getting 0% returns on your investment. You would have to pessimistically assume that there are no viable investment opportunities with returns above 0% for your thought experiment to carry some water, which seems very unlikely.

jaycroft 11y ago
If rates or yields remain positive for retail products, what's to stop hedge funds / companies with lots of cash / banks, from investing in those same products? Yields may be positive on paper, but I would suppose that fees will hide the fact that actual returns will be negative. Set up maximum account balance limits and you restrict investment by the non-retail crowd. Then again if these products are actually making profits for the small guy, what's the seller's incentive to keep providing them?
- a_humean 11y ago
  Because you can't buy $1 billion in individual cash saving accounts; there isn't a supply of them and a bank won't sell them to you. When you have very large sums your options of what you can buy and kind of the returns you can expect change. A small investor with $10k can experience greater volatility in their returns (good and poor), and can just go ahead and buy Apple shares without the FT writing an article about it. Also, the base rate is only really encountered directly by Banks that have accounts with central, in the case of the US, or regional central banks. A normal company and even very large non-bank firms don't typically have accounts with the central bank. For consumers and most businesses the interest rate set by the fed is more of a benchmark that ends up being used to help calculate the returns of other products.
dilemma 11y ago
Firstly, consumers have already seen negative rates on their deposits in Europe (Denmark?). Second, NIRP is designed to push money from low risk vehicles to high risk vehicles, including the stock market, and further inflate the current bubble.

jaycroft 11y ago

If rates or yields remain positive for retail products, what's to stop hedge funds / companies with lots of cash / banks, from investing in those same products? Yields may be positive on paper, but I would suppose that fees will hide the fact that actual returns will be negative. Set up maximum account balance limits and you restrict investment by the non-retail crowd. Then again if these products are actually making profits for the small guy, what's the seller's incentive to keep providing them?

a_humean 11y ago
Because you can't buy $1 billion in individual cash saving accounts; there isn't a supply of them and a bank won't sell them to you. When you have very large sums your options of what you can buy and kind of the returns you can expect change. A small investor with $10k can experience greater volatility in their returns (good and poor), and can just go ahead and buy Apple shares without the FT writing an article about it. Also, the base rate is only really encountered directly by Banks that have accounts with central, in the case of the US, or regional central banks. A normal company and even very large non-bank firms don't typically have accounts with the central bank. For consumers and most businesses the interest rate set by the fed is more of a benchmark that ends up being used to help calculate the returns of other products.

dilemma 11y ago

Firstly, consumers have already seen negative rates on their deposits in Europe (Denmark?). Second, NIRP is designed to push money from low risk vehicles to high risk vehicles, including the stock market, and further inflate the current bubble.