14 ms·

Think about how ridiculous this is for a moment. It's an easy loophole, and just more red tape and a bother. That's also not really the issue though. The proble

Think about how ridiculous this is for a moment. It's an easy loophole, and just more red tape and a bother. That's also not really the issue though. The problem is rates in general. Trying to spur growth into a system where there is none. Forcing speculative investing because of poor central banking policies and tough economic conditions. Ultimately the backlash from this will be worse than if central banks had avoided interfering in the first place. However, the interference has allowed a free-for-all in inflation and asset repricing to attempt to shift the debt they created away from themselves and increase wealth for those with assets. So in a sense, it's working. Robbing Peter to pay Paul. No one should be under the assumption anything else is happening here with these policies.

eru 5y ago
How can the central bank _not_ interfere? For a central bank there's no such thing as no policy. Even inaction is a policy. (Of course, there are systems that work without a central bank. And can work very well in fact. But that's not what the Dutch as part of the Euro zone have.)
- intothev01d 5y ago
  Yes, they ultimately act at some point and not at others, and that is their policy or stance (action or inaction). The problem is the actions they've been taking that are leading to the results I'm referencing.
- GDC7 5y ago
  > Even inaction is a policy Inaction is the only policy. All the other actions are stuff that these people do to justify their existence . With all due respect for Jerome Powell, Bernanke etc. these people are kind of frauds. They are the only academic which are globally known and get all the respect and bows as well as recognition. But their craft is a pseudoscience. The Nobel committee knows this, in fact the Nobel Prize for Economics is commonly referred as such but in reality it's: "The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel" Worlds apart. If they were real men they'd pick a real science and face real irrelevance like real men if they are wrong or fail to make important contributions. Only in economics people are still around after getting it wrong so many times. It seems like the more wrong you are , the more recognition you get, as people anticipate that economists who shoot frequently will get it right more than those who shoot infrequently given the randomness of their predictions
  - jfengel 5y ago
    There's no Nobel at all in mathematics. Does that make it pseudoscientific?
    - GDC7 5y ago
      Math is the foundation of sciences which gets the real Nobel, it would be redundant to have it in there.
    - mpalczewski 5y ago
      Math isn't a science at all, nor does it pretend to be.
    - yjftsjthsd-h 5y ago
      I don't think mathematics is a science at all, nor has it been claimed to be one?
- 01100011 5y ago
  I don't know, I'm just an idiot on the internet, but it seems like a better solution to monetary stimulus would have been fiscal stimulus. The government could have passed an infrastructure bill 18 months ago and the fed could have backed off. I'll admit I'm pretty furious at the fed right now though. As someone with a lot of assets in cash who was hoping to buy a house last year, I have been double penetrated by inflation and spiraling home prices. The housing market accelerated just out of my reach before I could make a move and my cash pile is on fire. I'd have moved back into the stock market to protect it, but it seemed risky given historical valuations and such. Now I'm poorer and I can't help but think Powell effectively just stole from me and I've been punished for being defensive and not participating in the fueling of an asset bubble.
  - arcticbull 5y ago
    > I'll admit I'm pretty furious at the fed right now though. I suspect you would have been a lot more furious at the Fed in the event they had sat back during COVID and presided over a deflationary spiral triggered by the lockdowns. Can't get a mortgage if you're out of work, ya know? > As someone with a lot of assets in cash who was hoping to buy a house last year... Let me stop you right there. Generally speaking, you shouldn't hold cash. Nobody should hold cash. Nobody should have ever held cash because even at the baseline expectation 2% inflation that's still a loss. > I have been double penetrated by inflation... Inflation is somewhere between 2 and 5%. That's not what I would call "penetration." Mild discomfort maybe. > ...and spiraling home prices. Housing affordability hasn't really changed on a monthly basis, because on a 30-year fixed rate mortgage the drop in interest rates from 4.xx% to 2.xx% means that a monthly payment two years ago on a $1M property is the same as it would be today on a $1.2M property. That's napkin math, I believe the spread is even larger IRL. In fact, if you can lock in a 2.xx% mortgage in a 2-5% inflationary environment then it is in real dollar terms a zero-interest loan. Before factoring in tax deductions. What's become more painful is making the down-payment. > Now I'm poorer and I can't help but think Powell effectively just stole from me and I've been punished for being defensive and not participating in the fueling of an asset bubble. You're not poorer, you're not as rich as you thought you'd be.
    - 5y ago
- deleted 5y ago
  [deleted]
viktorcode 5y ago
This is being practiced successfully throughout the world since the Great Depression times. Would love to hear when do you expect this system to collapse?
- klipt 5y ago
  How far negative can you go before it becomes ridiculous? If your bank has -50% interest, is that not effectively the same as hyperinflation?
  - lifty 5y ago
    But we don't need money, the government can tell us exactly what to do and where to go work, so that way we can run the economy at 100% efficiency. /s
  - throwaway2037 5y ago
    Considering that central banks for highly industrialised, wealthy nations normally move in 25bp increments, moving from -50bp to -50,000bp seems... well, a lot of central bank meetings. Are you proposing run away deflation? We have never seen it since the industrial revoluation stated. If the risk is real, why aren't we seeing more academic papers about this subject?
  - wcoenen 5y ago
    It can continue until people start withdrawing physical cash in large amounts, which will happen when the negative rate starts outweighing the cost and risk of storing cash. After that, further decreases of the interest rate can only work if cash withdrawals are restricted to prevent bank runs, or alternatively if the value of physical cash and digital deposits are decoupled. The IMF has posted something about the latter option[1]. [1] https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-negative-interest-rates-work/ https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-nega...
  - imtringued 5y ago
    If interest is -50% those bonds must truly be worthless. Seriously, if you can't find solvent borrowers at -49% something is really wrong with your economy.
Blikkentrekker 5y ago
I don't know about other countries, but this country is absolutely full of such loopholes and my parent is a master at exploiting them. My entire family s moving assets around in creative ways as to save money. In anticipation of my the death of my grandparent, he is now loaning money to his children in the legal sense to avoid inheritance tax so that when he dies they don't have to pay it. — All of this is legal, and it is silly.
- jdsully 5y ago
  I'm surprised that forgiven debt isn't considered income. It would be in the US, but then in the US the debt would still be owned by the estate and is still collectable.
- throwaway2037 5y ago
  My father always said that taxes are a problem of the rich. Middle class and below rarely complain about them. If your family is moving around money like that to avoid taxes, then you are a lucky and/or wealthy person! Silly? Yes, I agree. I favour about 50% inheritance tax with almost zero minimum. Inheritance is fuel for the fire of income inequality. Families create dynasties by avoiding inheritance tax. Most highly industrialised, wealthy countries would have much less income inequality with vastly higher inheritance taxes.
  - vineyardmike 5y ago
    > Most highly industrialised, wealthy countries would have much less income inequality with vastly higher inheritance taxes. Its trivial for someone with lots of money to find ways to avoid dying with money but still ensure the next generation has a good life. As grandparent comment suggests. I don't think any tax or any plan that is not destructively over-burdensome can avoid people ensuring their next of kin have a good life.
    - throwaway2037 5y ago
      You wrote: "destructively over-burdensome" How do you feel about my suggestion of 50% inheritance tax without loop holes and minimums? It should decrease inherited wealth by greater than a geometric rate. If any Germans / Austrians / Taiwanese / Koreans / Japanese are reading this thread: Can you comment about how to handle inheriting a family business than is worth more than 1M EUR? (They are all famous for "Der Mittelstand"[1].) My point: When you begin to add exceptions, 1M EUR quickly becomes 10M EUR and 100M EUR! Idea: You "pay" the tax on a family business inheritance buy guaranteeing payments to national tax authority / treasury as long as the business is open. (Assume business does not go bankrupt!) You can discount the future cashflows and get a present value that appears as a debt on the company balance sheet. [1] https://en.wikipedia.org/wiki/Mittelstand https://en.wikipedia.org/wiki/Mittelstand
cryptica 5y ago
When 99% of people realise that they've essentially been scammed by the reserve banks, the backlash is going to be massive. There will be discussions about asset seizures and wealth redistribution. That's just a matter of time now. The cryptocurrency crowd knows this and wants this. They're helping to accelerate this. Guess what asset is hard to seize? The masterplan is this: Let the banks mess things up, ruin people's trust in their governments and in capitalism, you move to a country that's unlikely to fall to communism, HODL your crypto, then wait it out then watch your crypto price moon as capitalists desperately try to flee into crypto to protect their wealth while their home countries fall to communism.
- WalterBright 5y ago
  > There will be discussions about asset seizures and wealth redistribution. There already is. Asset seizures and wealth redistribution are central planks for Sanders & Warren.
  - throwaway2037 5y ago
    "[W]ealth redistribution" -- I smile when I hear this fiscal conservative talking point. I put this term in the same category as "penalising savers with low (central bank) rates". Hello Thatcherites! Do you consider the wide and deep social safety nets of Canada, Uruguay, Ireland, France, UK, Germany, Austria, Belgium, Netherlands, Denmark/Nordics, Spain, Italy, Israel, Australia, New Zealand, Taiwan, Korea, and Japan as "wealth redistribution"? From the perspective of an academic economist: I do. From the perspective of an average working Joe, who is lucky to not yet fall into such safety net: I do not. The social safety net is essential for a well-balanced, modern, highly industialised, capitalistic, wealthy country. To be clear, when I use the term "social safety net", I mean (at least): healthcare, education, housing, unemployment, and retirement pension.
    - WalterBright 5y ago
      Is a wide and deep social safety net essential? All the biggest, most prosperous companies are US based. > who is lucky I know it's popular these days to say one's success is all luck, but we both know better :-) You've made some good choices along the way.
imtringued 5y ago
An article from 2014: http://rootbug.com/interstellar-oikeassa-aikaan-liittyvat-oletukset-tuhoavat-ihmiskuntaa/ http://rootbug.com/interstellar-oikeassa-aikaan-liittyvat-ol... >That people’s “time preference”, impatience, cannot be negative in the long run — and hence the possibility of negative real interest rates is not needed. How does time preference become negative? Aging populations consist of people who need to work now, because they cannot work later. Alternatively, rich people at the top consider money a measure of wealth and optimize it like a high score. Third cause. Banks have written an excessive amount of money losing bonds and the money they have issued does not actually reflect the losses in the bond market (2008). In other words, people use money to isolate themselves from losses in the real economy because it is insured by the government. I will say this: Over the long term interest rates are not set by banks, not even the central bank. It is primarily the availability of solvent borrowers. Companies essentially offer an investment opportunity to the bank and promise a fixed rate of return. The banks purpose is to price risk, effectively it is determining whether that promise is the real deal. The fact that low interest rates have not lead to inflation simply means that there are no solvent borrowers at that level of interest. Here is a perverse fact about deflation: Once you have deflation, money itself provides a risk free rate of return that competes with labor (the thing that backs debt based money) for capital. When there is deflation there is no market mechanism that can determine an interest rate that balances credit (savings) and debt (borrowing). According to the Friedman Rule [0] the best interest rate is 0% and it is assuming no inflation or deflation. When you have deflation interest rates must become negative. [0] https://en.wikipedia.org/wiki/Friedman_rule https://en.wikipedia.org/wiki/Friedman_rule
- useful 5y ago
  When you have deflation, capital in general, not just money, competes with labor. Buffet became very rich because of this fact. In the current environment, revenue, profit, growth are what drives valuations. Cigarette butt value investing? Not so much. But what if you have deflation and/or high taxes? A building, land, machinery, yourself, etc are what you should invest in because they can be used to make money. Those who get rich in these environments are the ones that are making a bet on depreciation of capital (property, goods, etc) being less because of an increase in value or their useful life in an environment that rewards those who put their money to work.

eru 5y ago

How can the central bank _not_ interfere? For a central bank there's no such thing as no policy. Even inaction is a policy. (Of course, there are systems that work without a central bank. And can work very well in fact. But that's not what the Dutch as part of the Euro zone have.)

intothev01d 5y ago
Yes, they ultimately act at some point and not at others, and that is their policy or stance (action or inaction). The problem is the actions they've been taking that are leading to the results I'm referencing.
GDC7 5y ago
> Even inaction is a policy Inaction is the only policy. All the other actions are stuff that these people do to justify their existence . With all due respect for Jerome Powell, Bernanke etc. these people are kind of frauds. They are the only academic which are globally known and get all the respect and bows as well as recognition. But their craft is a pseudoscience. The Nobel committee knows this, in fact the Nobel Prize for Economics is commonly referred as such but in reality it's: "The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel" Worlds apart. If they were real men they'd pick a real science and face real irrelevance like real men if they are wrong or fail to make important contributions. Only in economics people are still around after getting it wrong so many times. It seems like the more wrong you are , the more recognition you get, as people anticipate that economists who shoot frequently will get it right more than those who shoot infrequently given the randomness of their predictions
- jfengel 5y ago
  There's no Nobel at all in mathematics. Does that make it pseudoscientific?
  - GDC7 5y ago
    Math is the foundation of sciences which gets the real Nobel, it would be redundant to have it in there.
  - mpalczewski 5y ago
    Math isn't a science at all, nor does it pretend to be.
  - yjftsjthsd-h 5y ago
    I don't think mathematics is a science at all, nor has it been claimed to be one?
01100011 5y ago
I don't know, I'm just an idiot on the internet, but it seems like a better solution to monetary stimulus would have been fiscal stimulus. The government could have passed an infrastructure bill 18 months ago and the fed could have backed off. I'll admit I'm pretty furious at the fed right now though. As someone with a lot of assets in cash who was hoping to buy a house last year, I have been double penetrated by inflation and spiraling home prices. The housing market accelerated just out of my reach before I could make a move and my cash pile is on fire. I'd have moved back into the stock market to protect it, but it seemed risky given historical valuations and such. Now I'm poorer and I can't help but think Powell effectively just stole from me and I've been punished for being defensive and not participating in the fueling of an asset bubble.
- arcticbull 5y ago
  > I'll admit I'm pretty furious at the fed right now though. I suspect you would have been a lot more furious at the Fed in the event they had sat back during COVID and presided over a deflationary spiral triggered by the lockdowns. Can't get a mortgage if you're out of work, ya know? > As someone with a lot of assets in cash who was hoping to buy a house last year... Let me stop you right there. Generally speaking, you shouldn't hold cash. Nobody should hold cash. Nobody should have ever held cash because even at the baseline expectation 2% inflation that's still a loss. > I have been double penetrated by inflation... Inflation is somewhere between 2 and 5%. That's not what I would call "penetration." Mild discomfort maybe. > ...and spiraling home prices. Housing affordability hasn't really changed on a monthly basis, because on a 30-year fixed rate mortgage the drop in interest rates from 4.xx% to 2.xx% means that a monthly payment two years ago on a $1M property is the same as it would be today on a $1.2M property. That's napkin math, I believe the spread is even larger IRL. In fact, if you can lock in a 2.xx% mortgage in a 2-5% inflationary environment then it is in real dollar terms a zero-interest loan. Before factoring in tax deductions. What's become more painful is making the down-payment. > Now I'm poorer and I can't help but think Powell effectively just stole from me and I've been punished for being defensive and not participating in the fueling of an asset bubble. You're not poorer, you're not as rich as you thought you'd be.
  - 5y ago
deleted 5y ago
[deleted]

viktorcode 5y ago

This is being practiced successfully throughout the world since the Great Depression times. Would love to hear when do you expect this system to collapse?

klipt 5y ago
How far negative can you go before it becomes ridiculous? If your bank has -50% interest, is that not effectively the same as hyperinflation?
- lifty 5y ago
  But we don't need money, the government can tell us exactly what to do and where to go work, so that way we can run the economy at 100% efficiency. /s
- throwaway2037 5y ago
  Considering that central banks for highly industrialised, wealthy nations normally move in 25bp increments, moving from -50bp to -50,000bp seems... well, a lot of central bank meetings. Are you proposing run away deflation? We have never seen it since the industrial revoluation stated. If the risk is real, why aren't we seeing more academic papers about this subject?
- wcoenen 5y ago
  It can continue until people start withdrawing physical cash in large amounts, which will happen when the negative rate starts outweighing the cost and risk of storing cash. After that, further decreases of the interest rate can only work if cash withdrawals are restricted to prevent bank runs, or alternatively if the value of physical cash and digital deposits are decoupled. The IMF has posted something about the latter option[1]. [1] https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-negative-interest-rates-work/ https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-nega...
- imtringued 5y ago
  If interest is -50% those bonds must truly be worthless. Seriously, if you can't find solvent borrowers at -49% something is really wrong with your economy.

Blikkentrekker 5y ago

I don't know about other countries, but this country is absolutely full of such loopholes and my parent is a master at exploiting them. My entire family s moving assets around in creative ways as to save money. In anticipation of my the death of my grandparent, he is now loaning money to his children in the legal sense to avoid inheritance tax so that when he dies they don't have to pay it. — All of this is legal, and it is silly.

jdsully 5y ago
I'm surprised that forgiven debt isn't considered income. It would be in the US, but then in the US the debt would still be owned by the estate and is still collectable.
throwaway2037 5y ago
My father always said that taxes are a problem of the rich. Middle class and below rarely complain about them. If your family is moving around money like that to avoid taxes, then you are a lucky and/or wealthy person! Silly? Yes, I agree. I favour about 50% inheritance tax with almost zero minimum. Inheritance is fuel for the fire of income inequality. Families create dynasties by avoiding inheritance tax. Most highly industrialised, wealthy countries would have much less income inequality with vastly higher inheritance taxes.
- vineyardmike 5y ago
  > Most highly industrialised, wealthy countries would have much less income inequality with vastly higher inheritance taxes. Its trivial for someone with lots of money to find ways to avoid dying with money but still ensure the next generation has a good life. As grandparent comment suggests. I don't think any tax or any plan that is not destructively over-burdensome can avoid people ensuring their next of kin have a good life.
  - throwaway2037 5y ago
    You wrote: "destructively over-burdensome" How do you feel about my suggestion of 50% inheritance tax without loop holes and minimums? It should decrease inherited wealth by greater than a geometric rate. If any Germans / Austrians / Taiwanese / Koreans / Japanese are reading this thread: Can you comment about how to handle inheriting a family business than is worth more than 1M EUR? (They are all famous for "Der Mittelstand"[1].) My point: When you begin to add exceptions, 1M EUR quickly becomes 10M EUR and 100M EUR! Idea: You "pay" the tax on a family business inheritance buy guaranteeing payments to national tax authority / treasury as long as the business is open. (Assume business does not go bankrupt!) You can discount the future cashflows and get a present value that appears as a debt on the company balance sheet. [1] https://en.wikipedia.org/wiki/Mittelstand https://en.wikipedia.org/wiki/Mittelstand

cryptica 5y ago

When 99% of people realise that they've essentially been scammed by the reserve banks, the backlash is going to be massive. There will be discussions about asset seizures and wealth redistribution. That's just a matter of time now. The cryptocurrency crowd knows this and wants this. They're helping to accelerate this. Guess what asset is hard to seize? The masterplan is this: Let the banks mess things up, ruin people's trust in their governments and in capitalism, you move to a country that's unlikely to fall to communism, HODL your crypto, then wait it out then watch your crypto price moon as capitalists desperately try to flee into crypto to protect their wealth while their home countries fall to communism.

WalterBright 5y ago
> There will be discussions about asset seizures and wealth redistribution. There already is. Asset seizures and wealth redistribution are central planks for Sanders & Warren.
- throwaway2037 5y ago
  "[W]ealth redistribution" -- I smile when I hear this fiscal conservative talking point. I put this term in the same category as "penalising savers with low (central bank) rates". Hello Thatcherites! Do you consider the wide and deep social safety nets of Canada, Uruguay, Ireland, France, UK, Germany, Austria, Belgium, Netherlands, Denmark/Nordics, Spain, Italy, Israel, Australia, New Zealand, Taiwan, Korea, and Japan as "wealth redistribution"? From the perspective of an academic economist: I do. From the perspective of an average working Joe, who is lucky to not yet fall into such safety net: I do not. The social safety net is essential for a well-balanced, modern, highly industialised, capitalistic, wealthy country. To be clear, when I use the term "social safety net", I mean (at least): healthcare, education, housing, unemployment, and retirement pension.
  - WalterBright 5y ago
    Is a wide and deep social safety net essential? All the biggest, most prosperous companies are US based. > who is lucky I know it's popular these days to say one's success is all luck, but we both know better :-) You've made some good choices along the way.

imtringued 5y ago

An article from 2014: http://rootbug.com/interstellar-oikeassa-aikaan-liittyvat-oletukset-tuhoavat-ihmiskuntaa/ http://rootbug.com/interstellar-oikeassa-aikaan-liittyvat-ol... >That people’s “time preference”, impatience, cannot be negative in the long run — and hence the possibility of negative real interest rates is not needed. How does time preference become negative? Aging populations consist of people who need to work now, because they cannot work later. Alternatively, rich people at the top consider money a measure of wealth and optimize it like a high score. Third cause. Banks have written an excessive amount of money losing bonds and the money they have issued does not actually reflect the losses in the bond market (2008). In other words, people use money to isolate themselves from losses in the real economy because it is insured by the government. I will say this: Over the long term interest rates are not set by banks, not even the central bank. It is primarily the availability of solvent borrowers. Companies essentially offer an investment opportunity to the bank and promise a fixed rate of return. The banks purpose is to price risk, effectively it is determining whether that promise is the real deal. The fact that low interest rates have not lead to inflation simply means that there are no solvent borrowers at that level of interest. Here is a perverse fact about deflation: Once you have deflation, money itself provides a risk free rate of return that competes with labor (the thing that backs debt based money) for capital. When there is deflation there is no market mechanism that can determine an interest rate that balances credit (savings) and debt (borrowing). According to the Friedman Rule [0] the best interest rate is 0% and it is assuming no inflation or deflation. When you have deflation interest rates must become negative. [0] https://en.wikipedia.org/wiki/Friedman_rule https://en.wikipedia.org/wiki/Friedman_rule

useful 5y ago
When you have deflation, capital in general, not just money, competes with labor. Buffet became very rich because of this fact. In the current environment, revenue, profit, growth are what drives valuations. Cigarette butt value investing? Not so much. But what if you have deflation and/or high taxes? A building, land, machinery, yourself, etc are what you should invest in because they can be used to make money. Those who get rich in these environments are the ones that are making a bet on depreciation of capital (property, goods, etc) being less because of an increase in value or their useful life in an environment that rewards those who put their money to work.