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Germany for First Time Sells 30-Year Bonds Offering Negative Yields

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Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#121
post #108

Earlier quoted context omitted.

So people should be forced to invest their money even if they don't think any of the ventures are worthwhile? And physical cash shouldn't exist either?

> So people should be forced to invest their money even if they don't think any of the ventures are worthwhile? And physical cash shouldn't exist either? Physical cash is also debt (backed by the full faith and credit of the US government, in the case of the US, or the relevant issuer in the case of other fiat currencies).

Non-central fallacy: Yes, it technically meets one definition of "liability", and is therefore debt; it is not "being invested in a venture" in the sense of this discussion.

Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#122
post #110
post #75

Earlier quoted context omitted.

I think the answer to both your questions is because there are costs to securely storing cash. That also makes cash risky compared to bonds, where you are not responsible for the security.

Why is everyone responding to the question under the same misinterpretation, that it means "cash" as in "physical banknotes" rather than "electronic Euros"? I know the principle of charity is hard sometimes, but come on.

Because a bank can go under, and you can lose your money in excess of the insured amount.

Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#123
post #73
post #22

If central banks weren't setting the price of credit by fiat, what would a "market" risk free rate be? Have any economists tried to answer this question? Edit: not sure why I'm being downvoted for this...?

I think issuing fiat money and setting price of credit by fiat are two faces of the same coin. I think the way real interest rates behaved under the "Gold Standard" would be close to an answer to your question.

Not sure, but to your point even during the gold standard there was an element of fiat because the government mandated a convertibility with respect to gold.

Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#124

I feel like I still don't understand negative yields, despite really trying to. Negative yields means that I put in $X (or euro/whatever germany is using) and I later am guarenteed no more than $Y out of the exchange, where Y < X. I am literally guaranteed to lose money. I could just hold on to my money, "keep it under my mattress" and still make a better ROI than bonds with negative yields. Why would anybody buy the…

If it's a large amount of money, you might decide to put it in a bank so that you don't have to worry about it being stolen. Once it is in a bank now you have to play the game of trying to figure out the comparative risk between the bank not being around any more 30 years from now, versus the chance that the German government will have forgotten how to operate the money printing presses. Of course, since this is the…

Yeah I don't get the impression that you know too well what you are talking about if you don't know the difference between the EU and the Eurozone. Even if the euro were to break up/be abolished and resolve back to smaller currencies there would be a conversion key. The chance that the renmenbi, GBP, yen or even the dollar will have major issues look a lot more likely in the current climate - the renmenbi is still struggling to become a global currency and everyone can see the political struggles on the horizon, the GBP will continue it's free fall after the disastrous Brexit and the following depression, the dollar is widely overdue for a correction and will lose out if eg China starts dumping their reserves, not to speak of the endless debt spiral the us is in - similarly for the yen, with the high debt it looks unlikely to be a stable currency in the long term (even if it's mostly local debt). That doesn't leave too many options - with the euro a fairly stable option as long as people remember the nightmares of Europe pre-euro (and most outside the anglophone bubble do): huge costs and price uncertainty in cross border trade, big financial players gambling and manipulating against smaller currencies (as you still see in Africa today), and overall little trust in the local currencies.

Trust in the euro (not necessarily the EU as a whole, as it is a target for much local political hate & lies when it's easier to blame Brussels than accept responsibility for mistakes) is at an all-time high, with not even Italians wanting to give it up. No one wants the lira or drachma back.

Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#125
post #110

Earlier quoted context omitted.

Why is everyone responding to the question under the same misinterpretation, that it means "cash" as in "physical banknotes" rather than "electronic Euros"? I know the principle of charity is hard sometimes, but come on.

Because a bank can go under, and you can lose your money in excess of the insured amount.

Not if it's a bank that specifically caters to this crowd and doesn't take any of the normal risks associated with lending.

Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#126

I feel like I still don't understand negative yields, despite really trying to. Negative yields means that I put in $X (or euro/whatever germany is using) and I later am guarenteed no more than $Y out of the exchange, where Y < X. I am literally guaranteed to lose money. I could just hold on to my money, "keep it under my mattress" and still make a better ROI than bonds with negative yields. Why would anybody buy the…

This is an example of how to write a good article, I think the first sentence answers your question: "Germany sold 30-year debt at a negative yield for the first time, as investors desperate for safe assets bet that further falls in yields will boost the value of the bonds in the future." The investors buying these bonds are simply betting that these bonds will increase in value (which will supposedly happen if centr…

The implication then is that we're in a bond bubble. When you're buying something that you know has negative fundamental returns on the assumption that someone will buy it from you at a higher price, that's the definition of a bubble.

And like many bubbles, it's entirely possible they'll be right in the short term, but it's basically guaranteed that they'll be wrong in the long term. You know exactly what a bond will be worth in 30 years, and with negative interest rates, you know it'll be worth less than now.

Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#127
post #121

Earlier quoted context omitted.

> So people should be forced to invest their money even if they don't think any of the ventures are worthwhile? And physical cash shouldn't exist either? Physical cash is also debt (backed by the full faith and credit of the US government, in the case of the US, or the relevant issuer in the case of other fiat currencies).

Non-central fallacy: Yes, it technically meets one definition of "liability", and is therefore debt; it is not "being invested in a venture" in the sense of this discussion.

> Non-central fallacy: Yes, it technically meets one definition of "liability", and is therefore debt; it is not "being invested in a venture" in the sense of this discussion.

Except it is being invested. That's a major part of the role that the government plays when interacting with the macroeconomy.

Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#128
post #96

Earlier quoted context omitted.

It would be counter productive to society. Put money in a bank, the bank lends it out, the money serves society buy financing a new business or perhaps consumption but either way it is doing something. Lend it to the government in the form of bonds and they'll spend it on something. If it just goes into the cash account you're describing, it does nothing but exist, in the event of recessions this would be severely da…

This is sort of correct, but it also doesn't address the point that this setup can't exist, logically, with fiat currency. There is no way to hold money that isn't ultimately lent to or borrowed from some other entity. You can store cash under your mattress, but even that's money that you've effectively lent to the government (the seigniorage of storing it under your mattress means that you've now given them the abil…

> This is sort of correct, but it also doesn't address the point that this setup can't exist, logically, with fiat currency.

Yes, it can. It can't exist with the game playing that exists with most modern fiat currencies to create the illusion that they are something other than fiat of the issuing government, which creates a lot of artificial debt to create the illusion of a government constrained by the same fiscal concerns that apply to a country using commodity or foreign fiat currency rather than its own fiat.

But this is a behavioral hack to reduce the likelihood of a particular undesirable course of monetary policy (unrestrained money printing), not fundamental to the nature of fiat currency.

Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#129

I feel like I still don't understand negative yields, despite really trying to. Negative yields means that I put in $X (or euro/whatever germany is using) and I later am guarenteed no more than $Y out of the exchange, where Y < X. I am literally guaranteed to lose money. I could just hold on to my money, "keep it under my mattress" and still make a better ROI than bonds with negative yields. Why would anybody buy the…

This is an example of how to write a good article, I think the first sentence answers your question: "Germany sold 30-year debt at a negative yield for the first time, as investors desperate for safe assets bet that further falls in yields will boost the value of the bonds in the future." The investors buying these bonds are simply betting that these bonds will increase in value (which will supposedly happen if centr…

> which will supposedly happen if central banks cut interest rates more in the future).

long bonds aren't affected by overnight rates. that's why the yield curve inverts

Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#130
Slightly OT but I’ve been trying to google this for a while and there are people reading this who will know where I can look:

If a government (pretend US if it helps) stopped collecting taxes, and instead funded the budget by printing money every year, who would be the winners and losers compared to the current system? Where can I go to learn more?

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