3 ms·

To safely park cash. Think government securities.

refurb 4y ago
Ok, fair point on that one. Eliminate the default risk and you're willing to take 0% or even a negative real interest rate.
- roflyear 4y ago
  Yeah. But without getting value through some mechanism like that (or, imagine if you're convinced that equities will be flat or return negative over the next few years) you're correct - you should make money from lending money.
blagie 4y ago
This is correct. If you have $100B, what are your options? 1) Risky return-yielding instruments, like stocks and bonds 2) Non-liquid assets, like land 3) A Scrooge McDuck giant vault full of cash 4) ... and so on. In many cases, a negative interest account works better than any of the above. Sweden was the first to employ them in 2009, with an interest rate of -0.25%. The world didn't implode, as people predicted. If I deposit $100B overnight at -0.25%, I've lost just north of half a million dollars for that night. That's enough to push me to look for other places to stash my money (stimulating the economy), but not enough to break me (assuming I have $100B, which unfortunately, I don't). Critically, if the economy is collapsing, and you expect stocks to go down, removing other places to stash money can prop them up.
- prottog 4y ago
  > That's enough to push me to look for other places to stash my money Yep, you take your $100B and invest it in the US capital markets. Does nothing for Sweden's economy other than make it comparatively less competitive.
  - blagie 4y ago
    If you're willing to handle forex risks.... If I borrow $1M in USD to buy a 11M SEK property in Sweden, and the dollar goes up, I'm drowning underwater. If the dollar goes down, I'm sitting pretty.
- roflyear 4y ago
  People also forget that banks are only FDIC insured up to a certain amount, generally. So if you have like $1b, though unlikely, there are many reasons to not keep it in cash.
  - blagie 4y ago
    People also forget that the negative interest rates are with central banks. They're not FDIC-insured because if they go under, that means the FDIC (together with the rest of the country) is gone.

Ok, fair point on that one. Eliminate the default risk and you're willing to take 0% or even a negative real interest rate.

roflyear 4y ago
Yeah. But without getting value through some mechanism like that (or, imagine if you're convinced that equities will be flat or return negative over the next few years) you're correct - you should make money from lending money.

blagie 4y ago

This is correct. If you have $100B, what are your options? 1) Risky return-yielding instruments, like stocks and bonds 2) Non-liquid assets, like land 3) A Scrooge McDuck giant vault full of cash 4) ... and so on. In many cases, a negative interest account works better than any of the above. Sweden was the first to employ them in 2009, with an interest rate of -0.25%. The world didn't implode, as people predicted. If I deposit $100B overnight at -0.25%, I've lost just north of half a million dollars for that night. That's enough to push me to look for other places to stash my money (stimulating the economy), but not enough to break me (assuming I have $100B, which unfortunately, I don't). Critically, if the economy is collapsing, and you expect stocks to go down, removing other places to stash money can prop them up.

prottog 4y ago
> That's enough to push me to look for other places to stash my money Yep, you take your $100B and invest it in the US capital markets. Does nothing for Sweden's economy other than make it comparatively less competitive.
- blagie 4y ago
  If you're willing to handle forex risks.... If I borrow $1M in USD to buy a 11M SEK property in Sweden, and the dollar goes up, I'm drowning underwater. If the dollar goes down, I'm sitting pretty.
roflyear 4y ago
People also forget that banks are only FDIC insured up to a certain amount, generally. So if you have like $1b, though unlikely, there are many reasons to not keep it in cash.
- blagie 4y ago
  People also forget that the negative interest rates are with central banks. They're not FDIC-insured because if they go under, that means the FDIC (together with the rest of the country) is gone.