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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 S
by 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 agoIf 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 agoPeople 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 agoPeople 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.