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Bank of Japan, in a Surprise, Adopts Negative Interest Rate

nytimes.com

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Re: Bank of Japan, in a Surprise, Adopts Negative Interest Rate

#31

Post by Rumford »

wrong_variable wrote: post #3

I do not understand this. Japan imports almost all of its oil and commodities. Shouldn't low price of oil and commodities result in a massive surplus for a country that sells high value added goods ? Buy iron for cheap and sell robots for a high price. Now the argument many people will make is that the people who are buying the high-value added goods won't have money anymore - but the argument can be made in the oppo…

Your instincts are not wrong, believe it or not. Unfortunately most economists fall short of the current state of their science. The first thing one needs to understand about economics is how rife it is with special pleading from selfish interests, because the output of economic science is so important to justifying public policy prescriptions. One thing that is constantly ignored is how government fiddling with the interest rate has a way of warping the capital structure into unsustainable configurations. You don't need an economics Nobel Prize to know that when Venezuela puts price controls on food the grocery stores go empty. But there are much more powerful special interests served by price controls on borrowed capital, so a lot of effort goes into willfuly bad "economics" aimed at justifying the practice.

Re: Bank of Japan, in a Surprise, Adopts Negative Interest Rate

#33

Post by riskneural »

narrator wrote: post #30
jevgeni wrote: post #22

Earlier quoted context omitted.

This is not that clear cut. Dollar will appreciate against the yen. This will be advantageous to imports from Japan and disadvantageous to U.S. exports. I can't speculate on the intensity though.

Those yen loans will buy our bonds though. This will increase credit availability. The whole system runs on credit availability. The housing bubble should have made that clear.

Credit slushes around like crazy for years. These days it flows into an S&P trading near 20 P/E, negative government bond interest rates, corporate bond interest rates below historical default rates, reinsurance treaties and cat bonds trading below expected value, and what else?

Demand needs to pick up with credit availability or it just leads to asset bubbles.

Re: Bank of Japan, in a Surprise, Adopts Negative Interest Rate

#34

Post by [deleted] »

guard-of-terra wrote: post #11
wrong_variable wrote: post #3

I do not understand this. Japan imports almost all of its oil and commodities. Shouldn't low price of oil and commodities result in a massive surplus for a country that sells high value added goods ? Buy iron for cheap and sell robots for a high price. Now the argument many people will make is that the people who are buying the high-value added goods won't have money anymore - but the argument can be made in the oppo…

Oil is cheap because China is having problems. And they were perhaps selling robots to China. Yes, cheap commodities should benefit Japan but when they're cheap because demand is weak, Japan suffers from that too.

[deleted]

Re: Bank of Japan, in a Surprise, Adopts Negative Interest Rate

#35

Post by ifdefdebug »

riskneural wrote: post #32

I remember, in 2009, spending the effort to go through the code to make sure we had a check to set the interest rate to zero if it went negative in the simulation. Because negative interest rates make no sense, right?

When the value of money falls very deep in a crisis and investors don't want to invest but keep their money liquid, then banks may charge you a fee for allowing you to park your money with them, instead of paying you for loaning it to them.

So yes, negative interest can make sense. And maybe you coded a bug into your application instead o a feature, based on wrong assumptions...

Re: Bank of Japan, in a Surprise, Adopts Negative Interest Rate

#36

Post by narrator »

riskneural wrote: post #33
narrator wrote: post #30

Earlier quoted context omitted.

Those yen loans will buy our bonds though. This will increase credit availability. The whole system runs on credit availability. The housing bubble should have made that clear.

Credit slushes around like crazy for years. These days it flows into an S&P trading near 20 P/E, negative government bond interest rates, corporate bond interest rates below historical default rates, reinsurance treaties and cat bonds trading below expected value, and what else? Demand needs to pick up with credit availability or it just leads to asset bubbles.

Here we have Grand Poobah of Keynesian economics and Nobel Laureate Paul Krugman in 2002 calling for a Housing Bubble to replace the NASDAQ bubble:

http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip...

>To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

The American economy loves a good asset bubble.

Re: Bank of Japan, in a Surprise, Adopts Negative Interest Rate

#37

Post by ifdefdebug »

jevgeni wrote: post #29
Patient0 wrote: post #25

This was news.... 3 days ago. I don't understand how it's rocketing up the HN front page only now.

On FT or Bloomberg, yeah. HN has more important things to do, like arguing if one can call a variable "iGiveHead" in a FOSS project[1]... ____ [1] - https://news.ycombinator.com/item?id=11018019

You just had to find a way to pull the gender issue into a thread that has nothing to do with it right?

Completely off topic, sorry.

Re: Bank of Japan, in a Surprise, Adopts Negative Interest Rate

#38

Post by pjc50 »

jetskindo wrote: post #12

> a sign of the continuing global trouble from plummeting low oil prices Gas is one of those things I have no control over. If it's expensive I have to pay, if it's cheap I have to pay. I'm dependent, and in a city like Los Angeles the alternative is impossible. They raised the price of public transport to a point where it is not even convenient. So when I go to the gas station and it's cheap I'm happy. I fill it up…

Generally it isn't bad for you if you're not in the oil industry or an oil-dependent country. Places like Venezuela, Nigeria, and even the fabulously rich KSA are in trouble though.

It may be bad if you're in an energy-intensive business that's just made investments in reducing its fuel costs, because now the payoff for those investments is worse.

The US was just starting to transition to an oil exporter due to unconventional oil, but now the price has collapsed the boom in North Dakota etc goes away.

Re: Bank of Japan, in a Surprise, Adopts Negative Interest Rate

#39

Post by kriro »

cperciva wrote: post #20
kriro wrote: post #9

I'm sure none of the hedge funds that were recently discussed as betting against the Yuan had any insider information there. "[...] ,in a Surprise, [...]"...riiiiiiight.

Yen != Yuan.

I know but one of China's plans to strengthen the Yuan is moving away from the $ towards a basket of currencies which includes the Yen (or at least having that option). That option is weakened quite a bit by this move.

Re: Bank of Japan, in a Surprise, Adopts Negative Interest Rate

#40

Post by branchless »

wrong_variable wrote: post #3

I do not understand this. Japan imports almost all of its oil and commodities. Shouldn't low price of oil and commodities result in a massive surplus for a country that sells high value added goods ? Buy iron for cheap and sell robots for a high price. Now the argument many people will make is that the people who are buying the high-value added goods won't have money anymore - but the argument can be made in the oppo…

It's really about demographics. When people borrow money is created. When they stop borrowing money is destroyed as it's paid back, which leads to a deflationary collapse and other debts go bad.

We should have state issued money that tracks wealth created instead of debt that tracks boomer sentiment.

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