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Interest Rates: Naturally Negative?

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Re: Interest Rates: Naturally Negative?

#91

Post by remarkEon »

djyaz1200 wrote: post #86

5 months ago on HN... 10 points by djyaz1200 5 months ago | parent [-] | on: U.S. personal income posts first drop in over thre... "We can't sit there and leave interests rates low forever" ...says who? What force dictates that the equilibrium for rates must be higher? Yes that's historically been the case but that doesn't mean that's the right path for us now and in the future. I would argue that low interest rates…

>Inflation is less of a risk now because of technology + globalization, right now we are experiencing significant deflationary pressure as products and labor converge towards global pricing/wages.

I've seen this point frequently cited on blogs, but I've yet to see any academic data that supports it. Intuitively it makes sense to me. I just haven't seen any raw data that backs it up yet. Indeed, isn't this what Trump and Brexit are trying to reverse?

Re: Interest Rates: Naturally Negative?

#92

Post by umeshunni »

programmertote wrote: post #65
kitten_smuggler wrote: post #37

Earlier quoted context omitted.

Bitcoin and gold imo, in addition to a balanced portfolio of stocks, bonds and real estate.

Aside from buying physical gold at a refinery, is there a place to buy gold from the equities market? Sorry if this question sounds naive/ridiculous. If it's in my country, people would go to gold/jewelry shops and buy gold. In the US, I'm not sure if it's the case. Thank you.

You can buy a Gold ETF such as GLD: https://www.spdrgoldshares.com/

Re: Interest Rates: Naturally Negative?

#93

Post by gruez »

kebman wrote: post #46

This Danish bank has a -0.5 percent interest rate. Source (in Danish language): https://www.jyskebank.dk/bolig/nyheder/realkredit-med-negati... It still looks like it'll actually be over 0 percent with fees and costs.

Excuse me what? If something is already negative interest rate, how would fees and costs (which are also negative) push that to 0?

Re: Interest Rates: Naturally Negative?

#94

Post by aoeusnth1 »

seiferteric wrote: post #23
perfunctory wrote: post #19

Earlier quoted context omitted.

Invest in reducing your energy bill if you haven't done so yet. solar plus storage plus house isolation. Should also raise the value of the house. In theory.

Can you or anyone recommend a unbiased solar ROI calculator? I have been looking for something, bu every site that I find is trying to sell me solar, so it's not too unbiased. I already have a couple quotes, and I know roughly what my rates will be, so I should be able to plug all the numbers into something to find out what % ROI I will get.

Make a spreadsheet with one row per year. You can assume your system will last 25 years, depending on the panels and type of inverters you get.

Put your upfront costs at the first year's row (you're buying the system).

Calculate how much the system will save you in the current year (365 days), and put that in another column ("energy income") on the first row.

Each future energy income row gets discounted by ~7% multiplicatively: (1/1.07) * prev_row. This is to account for your ability to earn money from other investments, and to discount the future energy flows because of uncertainty. You can tweak this number up or down if you think the regulatory or technical value of solar energy is riskier than I do, or have different opinions about the stock market.

If the sum of the energy income column is bigger than the sum of the expense column, it's a good idea to buy solar. Shop around for the best deal you can get.

Re: Interest Rates: Naturally Negative?

#95

Post by roenxi »

I don't understand why people are just shrugging off the adjective 'naturally'. Interest rates in the present system aren't natural, they are set by the central banks.

A system where a small number of central bankers choose a number might be a good system, but to call it natural is an abuse of language. If the 'natural' rate for lending money was 10%, we'd never be able to find it because the US, European and whichever other central banks would intervene.

Re: Interest Rates: Naturally Negative?

#96

Post by qroshan »

roenxi wrote: post #95

I don't understand why people are just shrugging off the adjective 'naturally'. Interest rates in the present system aren't natural, they are set by the central banks. A system where a small number of central bankers choose a number might be a good system, but to call it natural is an abuse of language. If the 'natural' rate for lending money was 10%, we'd never be able to find it because the US, European and whichev…

which part of savings glut do you not understand?

Re: Interest Rates: Naturally Negative?

#97

Post by qroshan »

thdxr wrote: post #84
allana wrote: post #77

Earlier quoted context omitted.

Money doesn't have high velocity in the upper echelons of society compared to in the bottom half. One dollar will pass through many hands if paid to a person in the lower half of our economy, while in the top 10% this same dollar barely makes it into one other person's hands, let alone multiple. The economically disadvantaged chunk of society has grown as middle wage jobs have disappeared, while their wages have effe…

Do you have a source for your money velocity claim? Intuition implies it would be the opposite

Huh? Give 10 bucks to Bill Gates and 10 bucks to the homeless person that you just saw and tell me who would spend it immediately?

Re: Interest Rates: Naturally Negative?

#98

Post by bubble_talk »

When I see people defend negative interest rates, I am reminded of this saying by Orwell: "One has to belong to the intelligentsia to believe things like that: no ordinary man could be such a fool."

>>One likely factor behind the savings glut and negative interest rates is negative “time preference.” Once upon a time, economic theory maintained that people always value today’s consumption more than tomorrow’s consumption – and thus display positive time preference.

An alternative theory: people's time preference is still very much positive, but becomes negative when presented with a set of equally bad options - negative interest rates plus high risk speculative investments plus a history of governments around the world unexpectedly seizing or devaluing wealth building assets. To me, these bad options seem to be the making of the governments and not naturally occurring scenarios.

Re: Interest Rates: Naturally Negative?

#99

Post by [deleted] »

roenxi wrote: post #95

I don't understand why people are just shrugging off the adjective 'naturally'. Interest rates in the present system aren't natural, they are set by the central banks. A system where a small number of central bankers choose a number might be a good system, but to call it natural is an abuse of language. If the 'natural' rate for lending money was 10%, we'd never be able to find it because the US, European and whichev…

[deleted]

Re: Interest Rates: Naturally Negative?

#100

Post by beefield »

gridlockd wrote: post #47
worldvoyageur wrote: post #33

Negative interest on wealth is the historic norm for people who have a lot of it. Think storage costs for gold, guards (and maintenance) for your palace, or your yacht - not to mention the crazy depreciation. For the ultra rich, 50 basis points of holding costs would arguably be a bargain. Even normally wealthy people don't hesitate to pay 200 basis points for their wealth to be managed in, for instance, mutual funds…

Except when you're giving out a loan you're not asking the debtor to "store the wealth", you're asking them to pay you back the principal plus interest when the loan matures. The debtor is free to do as they wish with your money in the meantime. The debtor is also "free" to default and not give you back anything. The interest rate is supposed to reflect that risk. In the case of a government bond, you either have the…

> The debtor is also "free" to default and not give you back anything. The interest rate is supposed to reflect that risk.

That is not the only thing interest rate is supposed to reflect. Interest rate is supposed to also reflect the price of transferring your consumption over time (if you borrow , you want to consume earlier, if you lend, you want to consume later). And there is no real [1] reason why this price would have to clear only at positive values. So you have also possibly negative components on affecting the interest rate, thus it is completely feasible that the total interest rate is negative.

[1] outside the flawed assumptions of economics textbooks, that is.

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