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"Negative rates, which mean deposits decline over time rather than increase, “would be bad for all savers,” said Juergen Dengel, a 40-year-old civil servant fro
by neaden 7y ago
"Negative rates, which mean deposits decline over time rather than increase, “would be bad for all savers,” said Juergen Dengel, a 40-year-old civil servant from Bonn. If negative rates were introduced at his bank, he would consider withdrawing his money and using it to build a home -- even if that meant going into debt." - This seems like the goal of negative interest rates.
- deleted 7y ago[deleted]
- nugget 7y agoHis statement reinforces the whole point of ZIRP: minimize the value of financial capital and maximize the value of human capital. Force investors to take on more risk. Entrepreneurs ironically may take on less risk since the value of labor relative to capital shifts in their favor.
- big_chungus 7y agoBut what people forget is it is not just "evil big corp" that has cash on hand which will be devalued in such a way. Individuals do too. Pension plans do. All those will also lose out. Why is there some bureaucrat in an office deciding how much my money gains or loses today? Maybe it would be better to go back to the gold standard.
- toomuchtodo 7y agoThere is a penalty for assuming the future will always have value you’ll be able to extract. Perhaps everyone will consider working less when your excess fiat has so little value.
- mikeash 7y agoNothing is stopping you from storing your savings in gold right now. You don’t need the gold standard for that.
- cbanek 7y agoOther than needing to safely store your gold somewhere. I'm guessing there's probably also some insurance you could get to protect against loss? With a bank these are generally "free" with laws that protect deposits.
- mikeash 7y agoIf you trust others to keep it for you, there are companies that let you buy gold online that they will store for you, and there are even gold ETFs. If you have a brokerage account, buy some shares of GLD and you’re done.
- rightbyte 7y agoIf you don't trust the financial system surely you don't trust gold certificates either. Dig it down ... atleast I would.
- mikeash 7y agoThe original comment mentioned the gold standard, which is just gold certificates used as everyday currency. If you don’t trust that sort of stuff then the gold standard is totally irrelevant anyway.
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- the-dude 7y agoLast week I stumbled upon an article which claimed the Dutch government ( NL ) has the power to claim all private gold in the country. If it is true, I wonder if similar laws exist in other countries.
- johnchristopher 7y agoSee https://en.wikipedia.org/wiki/Gold_Reserve_Act https://en.wikipedia.org/wiki/Gold_Reserve_Act and https://en.wikipedia.org/wiki/Executive_Order_6102#Similar_laws_in_other_countries https://en.wikipedia.org/wiki/Executive_Order_6102#Similar_l... and https://www.quora.com/Why-did-it-used-to-be-illegal-for-Americans-to-own-gold https://www.quora.com/Why-did-it-used-to-be-illegal-for-Amer...
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- EliRivers 7y agoWhy is there some bureaucrat in an office deciding how much my money gains or loses today? How else would interest rates be set? If you want your money to grow all by itself just because you deposited in an account with an interest rate, how does that interest rate get decided if not by someone in an office? Someone, in an office, whatever tools they use to decide, has to make that decision, surely.
- wongarsu 7y agoThe maximum interest rate at which the bank is (nearly) guaranteed to make profit off my account balance can be calculated by an algorithm. Running that algorithm once a month and using it to set the bank's interest rate would be an interesting model that doesn't directly involve humans.
- JumpCrisscross 7y ago> The maximum interest rate at which the bank is (nearly) guaranteed to make profit off my account balance can be calculated by an algorithm This is a good way to blow up a bank.
- wongarsu 7y agoI'm not saying the algorithm is trivial, as it has to take long-term factors into account, as well as the reaction of the market to the new interest rate, and of course add safety and profit margins. It would be quite a bit of work, but it's well aligned with the core-competency of banks.
- JumpCrisscross 7y ago> It would be quite a bit of work, but it's well aligned with the core-competency of banks It is, and it’s difficult. Perhaps fundamentally impossible, given it would have to predict consumers’ tastes and preferences to estimate B2C companies’ creditworthiness. Rates are negotiated instruments, a combination of the return on safe assets today, the risk of that rate changing tomorrow, and the credit profile and availability of borrowers. There is no known algorithm which can robustly balance these variables. If it were discovered, it would be worth billions, perhaps more, and fundamentally change finance. Pretty much every crisis has a story about smart people thinking they’ve solved this problem in some narrow niche of the economy and then being shown disastrously wrong.
- hogFeast 7y agoDo you know about the behaviour of German savers? It is fundamentally different to America, the UK, most other countries in Europe. The only similar nation anywhere is Japan...and even then, still significant differences. The ECB is making a huge push, without any kind of democratic consent, towards a finance-based, American/UK-style financial system. This won't work because German savers have virtually no experience of such a system. All that will happen is: banks go bust (more bust, most German banks are insolvent), and savers lose all their money. Either they hold their money in banks or they take it out and lose it all doing stuff they know nothing about (if we don't have an immediate recession, you will see French investment banks swarm Germany...French bankers have some kind of innate ability to produce bullshit derivatives aimed at savers with a conservative bank-led culture of saving). It is kind of insane that we have got to the point where policymakers actively ignore markets. All that matters are the textbooks. But this doesn't work. You can't just transplant economic policies from another context and expect them to work the same. That said, it will be nice to see Germany return to the early 2000s. Objectively, Germany has one of the most vulnerable and poorly functioning economies in the G10. Combine this with utterly insufferable, self-important policymakers and you have quite a nice example of natural justice.
- krilly 7y agoCould you elaborate on how the behaviour of German savers differs to those in other countries?
- JumpCrisscross 7y ago> Could you elaborate on how the behaviour of German savers differs to those in other countries? European finance is bank based. Banks make most of the loans. Bank managers decide which projects get financed and which don’t. Investors put money in banks and let the banks make decisions. American finance is market based. Bond buyers make most of the loans. Bond (and stock) investors decide which projects get financed and which don’t. Investors themselves make decisions. Broadly speaking, the European bank-based model is moribund. It concentrates risks and is too conservative. The ECB is trying to change this, but it involves changing a social contract around how investors behave. This has happened without a broader debate, because Europe, and now we’re seeing a backlash in Germany.
- baddox 7y agoGuess it just sucks for people who make a modest living and want to save a modest portion of their income over many years.
- javert 7y agoFor that, you need honest, sound money.
- arcticbull 7y agoThere's nothing honest or dishonest, sound or unsound about this. It's a question of what the role of money is in a given civil society. The US tends to view money as a tool for voting on which projects, companies, etc are most efficient. Saving doesn't always mean saving money but rather saving value. If you own your house and land outright, would you not consider that "savings"? What about government bonds? Corporate bonds? Fixed-incomes? Dividend bearing stocks? Growth stocks? All of that is savings. Cash in a mattress is an unproductive asset, it's a waste of potential. An account at a bank that lends and kicks some back to you may be the most productive allocation in some circumstances but overwhelmingly it isn't. Money is only valuable when it moves.
- fauigerzigerk 7y ago>An account at a bank that lends and kicks some back to you may be the most productive allocation in some circumstances but overwhelmingly it isn't. At least it's better than putting money in an index ETF, because bankers making loans do actually contribute to the capital allocation process in a meaningful way.
- arcticbull 7y agoI believe thats a decision everyone has to make individually, and that's the point :)
- fauigerzigerk 7y ago
- Proven 7y agoYou have absolutely no clue what you're talking about.
- samsonradu 7y agoWhat purpose would that home serve? Is there demand for it or it will just suppress housing prices by increasing supply? I guess the message here is that rent-seeking investments (positive yielding investments, deposits) will no longer work. Value needs to be added.
- JumpCrisscross 7y ago> will just suppress housing prices by increasing supply? That’s an odd way to phrase keeping housing affordable.
- umeshunni 7y agoIt's a phrasing that's extremely popular in the US, for obvious reasons.
- samsonradu 7y agoTrue, too much watching Bloomberg lately :)
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- samsonradu 7y agoJust tried to be technical, since 'affordable' is debatable. What I'm asking is how would building houses for no reason help in the current circumstances. Wouldn't the house also erode in value?
- JumpCrisscross 7y ago> how would building houses for no reason Stable housing prices are good for an economy. Next to negative rates, that’s a win. That’s the point.
- samsonradu 7y ago
- mruts 7y agoThen buy the US risk free rate instead? Or get some nice equity premiums if you want. I seriously have a hard time understanding logic like this. Who is actually saving money in a savings account? There’s literally only one reason why you would keep money in a savings account: For FDIC (or equivalent) protection. But if that was the sticking point, then US T-notes are even better and they don’t have a 250k limit. Maybe this guy doesn’t know anything about finance and doesn’t understand? I’m confused. Moreover, this is exactly what rate cuts are for: to stimulate the velocity of money and encourage investment. Europeans in general are so risk adverse that they make irrational financial decisions. As EMH posites, you get a return commensurate to your risk: without bearing risk, there cannot be any return.
- tonyedgecombe 7y agoIt’s a common attitude, investing is seen as little more than gambling.
- zmk_ 7y agoEMH says that prices reflect information, if anything it's a statement about the mean/expected return. What you are probably referring to is CAPM which has this baked in as an assumption on people's preferences.
- mruts 7y agoEMH directly implies that it’s impossible to beat the market on a risk-adjusted basis. Therefore, all above market return is just compensation for bearing additional risk. Therefore EMH is fundamentally about there only being one Sharpe ratio, the market Sharpe. Though you could also say it’s about the market incorporating all known information because that and there only being one Sharpe ratio mean pretty much the exact same thing. Moreover the implications of CAPM and EMH are pretty much the same.
- kgwgk 7y agoJuergen from Bonn is not interested in buying US Treasuries for the same reason that Joe from Baltimore is not interested in buying Mexican government bonds even though they yield 7% rather than 1.5%.
- joezydeco 7y agoNice goal, but how do you do that without triggering a bank run? Because when everyone starts withdrawing their money, you get a bank run.
- JumpCrisscross 7y ago> how do you do that without triggering a bank run? Deposit insurance. The EU’s lack of a currency-wide deposit guarantee is a separate problem. One uniquely spawned by the Germans.
- joezydeco 7y agoDeposit insurance? You're going to ask the public to subsidize their own negative interest?
- c3534l 7y agoNot if the government is giving out money. Besides, the second the bank can't actually provide the money is the second they increase rates.
- cylinder 7y agoI'll never understand why people expect a rate of return above inflation simply for holding in cash savings accounts. It's a fundamental concept of a market economy -- you need to take a risk in order to earn a risk premium!