Author Topic: Negative interest rates? How does that work?  (Read 321 times)

0 Members and 1 Guest are viewing this topic.

Online Fishrrman

  • Hero Member
  • ****
  • Posts: 19,917
    • Fishrrman Speaks!
Negative interest rates? How does that work?
« on: August 27, 2019, 12:29:33 PM »
https://www.christianpost.com/voice/negative-interest-rates-how-does-that-work.html

Negative interest rates? How does that work?
Christian Post
8/27/2019
By Gordon C. Boronow

Over $17 trillion dollars’ worth of global debt is now “earning” an interest rate below 0%. Negative interest rates are infecting developed countries such as Germany, Switzerland and Japan. I read an article recently that said there are negative interest rate mortgages available in Denmark. Just trying to think about negative interest rates makes one’s head explode.

From a practical perspective, the mechanics of negative interest rates are clear enough. The borrower guarantees to pay, say, $1000 in a year. The lender then agrees to give the borrower $1020 (for a negative 2% yield) for the guaranteed payment. Voila, negative interest! You might point out that the lender would be better off just holding onto the cash, but that’s another story. A negative interest rate mortgage is even more cool. Each payment the borrower makes on the mortgage reduces the principal balance by more than the amount of the mortgage payment. How cool is that?

What has happened to interest rates that they are so low for so long? What does it mean for the economy in the United States and elsewhere? I certainly do not know, nor does anyone else. Interest rates are a price signal in the economy; the price of postponing consumption to a later period. Persistently low interest rates are a puzzle to economists and policymakers. Standard economic theory would expect that interest rates should be high enough to convince consumers to save something and not spend it all today and low enough that businesses can borrow and invest and still make a profit. In any case, economic theory does not expect negative interest rates.

More at URL above...

Online Fishrrman

  • Hero Member
  • ****
  • Posts: 19,917
    • Fishrrman Speaks!
Re: Negative interest rates? How does that work?
« Reply #1 on: August 27, 2019, 12:34:31 PM »
Hmmmm....

Folks, forgive me, I'm dumb.
But...

Suppose that a major USA bank announced that they would now charge you for depositing your money there.

And also suppose that there remained OTHER banks that did not, and advertised that fact.

If I had money in the bank that was going to charge me for my deposits, THE VERY FIRST THING I would do is close my account at such bank and move the money somewhere else.

Sumthin' tells me that most others would do the same.

What would YOU do...?

Online Cyber Liberty

  • Coffee! Donuts! Kittens!
  • Administrator
  • ******
  • Posts: 45,864
  • We got 'im now!®
Re: Negative interest rates? How does that work?
« Reply #2 on: August 27, 2019, 12:36:47 PM »
Don't call it the "Federal Government," that's an insult to the Founders.  It's a "National Government."
I will NOT comply.
                          Castillo del Cyber! ~~~~~>                          :dontfeed:

Offline Sanguine

  • Administrator
  • ******
  • Posts: 36,013
Re: Negative interest rates? How does that work?
« Reply #3 on: August 27, 2019, 04:19:41 PM »
The fact that interest rates are so low should be a good thing, I would think. 
"I ask, sir, what is the militia? It is the whole people, except for a few public officials." – George Mason, Virginia Ratifying Convention, June 1788

“Do right and risk the consequences.”
– Sam Houston

Online Cyber Liberty

  • Coffee! Donuts! Kittens!
  • Administrator
  • ******
  • Posts: 45,864
  • We got 'im now!®
Re: Negative interest rates? How does that work?
« Reply #4 on: August 27, 2019, 04:38:00 PM »
The fact that interest rates are so low should be a good thing, I would think.

Not if you have CDs.
Don't call it the "Federal Government," that's an insult to the Founders.  It's a "National Government."
I will NOT comply.
                          Castillo del Cyber! ~~~~~>                          :dontfeed:

Offline Sanguine

  • Administrator
  • ******
  • Posts: 36,013
Re: Negative interest rates? How does that work?
« Reply #5 on: August 27, 2019, 04:39:50 PM »
Not if you have CDs.

True, but money is available so that businesses can get started and grow.  If CSs don't do it, may be a better place to put my money.
"I ask, sir, what is the militia? It is the whole people, except for a few public officials." – George Mason, Virginia Ratifying Convention, June 1788

“Do right and risk the consequences.”
– Sam Houston

Offline thackney

  • Hero Member
  • ****
  • Posts: 9,678
Re: Negative interest rates? How does that work?
« Reply #6 on: August 27, 2019, 04:50:25 PM »
If I got a mortgage with negative interest, how long would they allow me to make interest only payments delaying the loan payback?
Life is fragile, handle with prayer

Offline Hoodat

  • Hero Member
  • ****
  • Posts: 7,050
Re: Negative interest rates? How does that work?
« Reply #7 on: August 27, 2019, 04:58:29 PM »
How nice!  The monetary policy that failrd so utterly in Japan in the 90s is now being adopted by the rest of the world.

Here's a better idea.  Get the federal government the hell out of it, and let businesses create wealth on their own without interference.  And please please please STOP TAXING MONEY ENTERING THE COUNTRY FROM ABROAD.
If a political party does not have its foundation in the determination to advance a cause that is right and that is moral, then it is not a political party; it is merely a conspiracy to seize power.

-Dwight Eisenhower-

Offline Absalom

  • Hero Member
  • ****
  • Posts: 1,763
Re: Negative interest rates? How does that work?
« Reply #8 on: August 27, 2019, 10:31:55 PM »
Mechanics aside while ignoring brokerage fees and taxes, consider:
A saver buys (invests in) $50,000 worth of Bonds sold by a Corporation;
for an interest yield of $2,000, so the Bonds gave him a positive return of 4% on his investment.
If the Bonds had a negative return he would receive nothing on his investment.
 

Offline InHeavenThereIsNoBeer

  • TBR Advisory Committee
  • ***
  • Posts: 4,001
Re: Negative interest rates? How does that work?
« Reply #9 on: August 27, 2019, 10:36:22 PM »
If I got a mortgage with negative interest, how long would they allow me to make interest only payments delaying the loan payback?

Wouldn't that be take interest payments?
My avatar shows the national debt in stacks of $100 bills.  If you look very closely under the crane you can see the Statue of Liberty.

Offline InHeavenThereIsNoBeer

  • TBR Advisory Committee
  • ***
  • Posts: 4,001
Re: Negative interest rates? How does that work?
« Reply #10 on: August 27, 2019, 10:42:20 PM »
It seems impossible at first, but it's really just the greater fool theory.  You buy a bond worth $500 for $505, because you think you can sell it to someone else later for $510.

Not really much different from the stock market the last several years, except with bonds there's an absolute limit on when it must blow up.
My avatar shows the national debt in stacks of $100 bills.  If you look very closely under the crane you can see the Statue of Liberty.

Offline thackney

  • Hero Member
  • ****
  • Posts: 9,678
Re: Negative interest rates? How does that work?
« Reply #11 on: August 28, 2019, 07:38:38 AM »
Wouldn't that be take interest payments?

Yes.
Life is fragile, handle with prayer


Share me

Digg  Facebook  SlashDot  Delicious  Technorati  Twitter  Google  Yahoo
Smf