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In Denmark you can take a mortgage and "pay" negative interest rate [1]. That is, you pay less back than what you borrowed. I fully agree that most people woul

In Denmark you can take a mortgage and "pay" negative interest rate [1]. That is, you pay less back than what you borrowed. I fully agree that most people would expect the interest rate to be positive, but their expectation is no rule. Actually I am very sure interest rates have no causal relationship with continuous growth. The one (and only?) thing where the the continuous growth requirement comes from is that most people do not want to be unemployed. That is the choice you need to make. Do you want growth or unvoluntary unemployment? [1] https://www.cnbc.com/2019/08/12/danish-bank-is-offering-10-year-mortgages-with-negative-interest-rates.html https://www.cnbc.com/2019/08/12/danish-bank-is-offering-10-y...

chii 7y ago
that denmark negative interest rate is interesting. But it still doesn't quite answer the central issue - who is "giving up" money to lend? The guardian article (https://www.theguardian.com/money/2019aug/13/danish-bank-launches-worlds-first-negative-interest-rate-mortgage https://www.theguardian.com/money/2019aug/13/danish-bank-lau...) only mentions that it's banks passing on negative rates from institutional lenders in money markets.
- beefield 7y ago
  Sorry, I do not quite understand your question. Anyway, it is ultimately (when you get your head around it, that is...) relatively simple. These institutional investors have cash (well, not exactly cash, but "cash" as in overnight deposits) that they need to invest. some poart of that they want to invest in "safe" instruments, e.g. bonds/commercial papers issued by banks. And it happens to be that they are willing to do that even if they are paid negative interest rate[1]. So the bank pays for its funding say -1.0%. Then the bank can lend the money forward with -0.5% and still make money. [1] Why do they want to do that? If you have a decent amount of money, say millions, and you want to save that for a while to purchase something say next month, you have not that many good alternatives to bank deposits/commercial papers/bonds. Actual cash is surprisingly cumbersome and expensive. Stocks are risky, you may lose quite a bit within one month. Government bonds pay even less. so if your bank says yep, we take your money for a month and pay you back a bit less in a month, you are likely going to swallow it.
- beefield 7y ago
  Maybe it is worthwhile to note that there is no money[1] that would not be someones loan from someone. Your moeny at the bank account? It literally only is "money" that you have lent to your bank. Cash? A bearer note from the central bank, i.e. a token that says that you are owed by the central bank. [1] As per current typical definitions of money. If you consider gold or e.g. cryptocurrencies as money, then the statement does not hold.

chii 7y ago

that denmark negative interest rate is interesting. But it still doesn't quite answer the central issue - who is "giving up" money to lend? The guardian article (https://www.theguardian.com/money/2019aug/13/danish-bank-launches-worlds-first-negative-interest-rate-mortgage https://www.theguardian.com/money/2019aug/13/danish-bank-lau...) only mentions that it's banks passing on negative rates from institutional lenders in money markets.

beefield 7y ago
Sorry, I do not quite understand your question. Anyway, it is ultimately (when you get your head around it, that is...) relatively simple. These institutional investors have cash (well, not exactly cash, but "cash" as in overnight deposits) that they need to invest. some poart of that they want to invest in "safe" instruments, e.g. bonds/commercial papers issued by banks. And it happens to be that they are willing to do that even if they are paid negative interest rate[1]. So the bank pays for its funding say -1.0%. Then the bank can lend the money forward with -0.5% and still make money. [1] Why do they want to do that? If you have a decent amount of money, say millions, and you want to save that for a while to purchase something say next month, you have not that many good alternatives to bank deposits/commercial papers/bonds. Actual cash is surprisingly cumbersome and expensive. Stocks are risky, you may lose quite a bit within one month. Government bonds pay even less. so if your bank says yep, we take your money for a month and pay you back a bit less in a month, you are likely going to swallow it.
beefield 7y ago
Maybe it is worthwhile to note that there is no money[1] that would not be someones loan from someone. Your moeny at the bank account? It literally only is "money" that you have lent to your bank. Cash? A bearer note from the central bank, i.e. a token that says that you are owed by the central bank. [1] As per current typical definitions of money. If you consider gold or e.g. cryptocurrencies as money, then the statement does not hold.