Author Topic: Super Low Interest Rates  (Read 993 times)

blue_green_sparks

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Super Low Interest Rates
« on: January 21, 2020, 05:47:28 PM »
Sorry Ben Franklin, a penny saved is no longer a penny earned. Some markets have negative rates..."take my money to hold my money". Really? We are practically forced to own equities, propping up poorly run corporations and softenening giant government debt. Pension funds have no safe havens. Bonds drag on your portfolio. I wonder sometimes....does cheap money kill efficiency and discourage the tried and true wisdom of trying to save money?

There must be incredible pressure to keep rates low. How long can this last? And when rates finally go up, what are we in for?

Wintergreen78

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Re: Super Low Interest Rates
« Reply #1 on: January 21, 2020, 06:03:08 PM »
The top

blue_green_sparks

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Re: Super Low Interest Rates
« Reply #2 on: January 21, 2020, 09:07:42 PM »
With the current trend perhaps banks will pay homebuyers to take out a mortgage ;)

habanero

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Re: Super Low Interest Rates
« Reply #3 on: January 22, 2020, 12:24:11 AM »
I strongly doubt the Fed or any other reasonable central bank will introduce negative interest rates. The massive negative (phun intended) effects are beginning to sink in around, and I think it will be a very, very long stretch to introduce it now. There is of course the possibility, but I think it has gotten more unlikely at least. Sweden has just hiked twice with the sole purpose of getting rid of negative rates (currently zero and on hold for the foreseeable future according to the central bank).

beltim

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Re: Super Low Interest Rates
« Reply #4 on: January 22, 2020, 01:11:16 AM »
I strongly doubt the Fed or any other reasonable central bank will introduce negative interest rates. The massive negative (phun intended) effects are beginning to sink in around, and I think it will be a very, very long stretch to introduce it now. There is of course the possibility, but I think it has gotten more unlikely at least. Sweden has just hiked twice with the sole purpose of getting rid of negative rates (currently zero and on hold for the foreseeable future according to the central bank).

You don't think Switzerland, Denmark, or Japan have reasonable central banks?

habanero

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Re: Super Low Interest Rates
« Reply #5 on: January 22, 2020, 01:37:42 AM »
You don't think Switzerland, Denmark, or Japan have reasonable central banks?

Denmark just follows the ECB so they have close to zero intellectual liberty. Switzerland is a special case with its safe haven currency and a few quirks. That leaves ECB and Japan.

Japan I don't know much about, so won't comment on that one.

As for the ECB, you have to remember what the goal of the central bank is: To get inflation to around 2%. It has not been there for ages so they do what they can, within their mandade, to try and get it there. There has been increased mumbling about the lack of the interest rate as a functioning tool when monetary rate is already this low (it not like -0.25% or -0.5% has a meaningful effect on your will to borrow to invest in sth). And negative rates are a massive tax on the banking system in the Euro-zone, curbing bank profitability and in turn bank's ability to lend money. And with low rates people are, much to the surprise of the ECB, increasing savings due to lower future expected returns. Then you have the effect of the low rates on the sustainability of various pension schemes around in Europe.

I am 95% certain that when someone does the tally in this monetary experiment at some point in the future it will be deemed a major policy mistake with adverse side effects, inflating asset prices instead of generating productive economic acticity etc. One thing is having low interest rates, but when you make them negative weir shit starts happening and those effects are getting attention now.

Tiering at the ECB has already been introduced - without going into details it means that banks in the Eurozone can deposit a good chunk (in some cases probably all) of its surplus cash in the ECB at 0% instead of at the target rate (-0.50%)

blue_green_sparks

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Re: Super Low Interest Rates
« Reply #6 on: January 22, 2020, 06:13:54 PM »
Low interest rates could be the new normal for a very long time. As the average age grows in certain markets, there is an overabundance of money seeking low risk investments. That plus slow positive growth has me in equities more than I would like to be.