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For people asking why is there even such a thing as negative interest rate (lend $100, get back $99), NPR Planet Money has a good explainer. TL;DR: There's a l

For people asking why is there even such a thing as negative interest rate (lend $100, get back $99), NPR Planet Money has a good explainer. TL;DR: There's a lot of cash in search of investment. While waiting for opportunity, you could stash it under the mattress. But that's not safe, you'd probably have to buy a safe, hire some guards. Also it's not very liquid. So you pay a bank to hold it for you, put it in their safe, use their transfer system, etc. Tah-dah: negative interest rate. https://www.npr.org/2019/09/20/762748958/episode-940-interest-rates-why-so-negative https://www.npr.org/2019/09/20/762748958/episode-940-interes...

selimnairb 7y ago
In another sense, doesn’t the existence of long-term negative interest rates suggest that some people/institutions have more money than they can productively use? If so, this would seem to be a pretty clear argument for wealth re-distribution in the name of poverty alleviation and reducing economic inefficiency.
- ISL 7y ago
  In a sense, that is precisely what low/negative rates do. If cash-holders' future purchasing power is diminished, it effectively redistributes future purchasing power to those earning money and making things now and in the future.
  - imtringued 7y ago
    In theory. In reality low income people do not have access to loans and therefore no access to low interest rates.
- Mikeb85 7y ago
  > In another sense, doesn’t the existence of long-term negative interest rates suggest that some people/institutions have more money than they can productively use? Yes. This is why venture capital is a thing, why it's so easy to get funding for a variety of businesses, and why hedge funds that have very modest returns are popular. > If so, this would seem to be a pretty clear argument for wealth re-distribution in the name of poverty alleviation and reducing economic inefficiency. Inflation is wealth redistribution. By reducing the real value of money, it benefits those who are engaged in economic activity and makes sitting on money a losing proposition. Actual wealth redistribution is a bad idea because it reduces incentives to invest or engage in economic activity and encourages capital flight.
- tathougies 7y ago
  > If so, this would seem to be a pretty clear argument for wealth re-distribution Negative interest rates are wealth redistribution. Keeping money in account would cost more money, so instead, you are forced to lend it out to people who need it (presumably poorer) for less money in the future. Thus the rich who have lots of cash lose money and the poor, who need cash, can use their cash, start businesses, and have to do less work to make their business profitable, after paying back the loan
  - dragonwriter 7y ago
    > Negative interest rates are wealth redistribution. So are positive interest rates, just in the opposite direction.
    - tathougies 7y ago
      Sure, but the commenter was asking if negative interest rates indicated that we need wealth redistribution from rich to poor. Also, in the recent past, we have had a negative 'real' interest rate. You'd be hard-pressed to find funds paying more than inflation on your cash.
  - cheez 7y ago
    > you are forced to lend it out to people who need it (presumably poorer) for less money in the future This will never happen.
    - tathougies 7y ago
      Um what? Negatvie interest rates already exist in some european countries and exactly this is happening.
      - cheez 7y ago
        It will never be lent out to poor people.
        deleted 7y ago
gohbgl 7y ago
What you wrote might be true for warehousing physical gold but not for (mostly digital) fiat money because the cost of digitally storing $1 and $10,000 is the same.

selimnairb 7y ago

In another sense, doesn’t the existence of long-term negative interest rates suggest that some people/institutions have more money than they can productively use? If so, this would seem to be a pretty clear argument for wealth re-distribution in the name of poverty alleviation and reducing economic inefficiency.

ISL 7y ago
In a sense, that is precisely what low/negative rates do. If cash-holders' future purchasing power is diminished, it effectively redistributes future purchasing power to those earning money and making things now and in the future.
- imtringued 7y ago
  In theory. In reality low income people do not have access to loans and therefore no access to low interest rates.
Mikeb85 7y ago
> In another sense, doesn’t the existence of long-term negative interest rates suggest that some people/institutions have more money than they can productively use? Yes. This is why venture capital is a thing, why it's so easy to get funding for a variety of businesses, and why hedge funds that have very modest returns are popular. > If so, this would seem to be a pretty clear argument for wealth re-distribution in the name of poverty alleviation and reducing economic inefficiency. Inflation is wealth redistribution. By reducing the real value of money, it benefits those who are engaged in economic activity and makes sitting on money a losing proposition. Actual wealth redistribution is a bad idea because it reduces incentives to invest or engage in economic activity and encourages capital flight.
tathougies 7y ago
> If so, this would seem to be a pretty clear argument for wealth re-distribution Negative interest rates are wealth redistribution. Keeping money in account would cost more money, so instead, you are forced to lend it out to people who need it (presumably poorer) for less money in the future. Thus the rich who have lots of cash lose money and the poor, who need cash, can use their cash, start businesses, and have to do less work to make their business profitable, after paying back the loan
- dragonwriter 7y ago
  > Negative interest rates are wealth redistribution. So are positive interest rates, just in the opposite direction.
  - tathougies 7y ago
    Sure, but the commenter was asking if negative interest rates indicated that we need wealth redistribution from rich to poor. Also, in the recent past, we have had a negative 'real' interest rate. You'd be hard-pressed to find funds paying more than inflation on your cash.
- cheez 7y ago
  > you are forced to lend it out to people who need it (presumably poorer) for less money in the future This will never happen.
  - tathougies 7y ago
    Um what? Negatvie interest rates already exist in some european countries and exactly this is happening.
    - cheez 7y ago
      It will never be lent out to poor people.
      - deleted 7y ago

gohbgl 7y ago

What you wrote might be true for warehousing physical gold but not for (mostly digital) fiat money because the cost of digitally storing $1 and $10,000 is the same.