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UK banks given six months to prepare for negative interest rates
11–20 of 112 posts
Re: UK banks given six months to prepare for negative interest rates
#12Can someone explain this, Matt Levine-style? I mean, if someone offered to pay me interest to take out a loan, I'd immediately request MAXINT.
The point is precisely that the Powers That Be want you to take out MAXINT - and then unload it on the wider economy as cheap loans to stimulate the economy. Whether that second part actually happens, or banks just use this extra cash to stuff their balance sheets, well... it's a bit of an open question, to put it mildly.
See also: liquidity trap https://en.wikipedia.org/wiki/Liquidity_trap
It's when, despite low/negative rates, borrowers prefer to hold cash than to take out loans.
Re: UK banks given six months to prepare for negative interest rates
#13I wonder if there's an analysis of negative interest rates available across different economies.
Re: UK banks given six months to prepare for negative interest rates
#14So if I take a loan, it would pay itself off after a while?
Re: UK banks given six months to prepare for negative interest rates
#15Can anyone counter my impression that we are witnessing in the Western world the exact same course of events that happened in Japan in the 1990s? (low growth, high debt, ageing population, low interest rates, rising of average P/E ratios).
Am I wrong to expect that corporate valuations in Europe and the U.S. will not appreciate in the coming decades as they have in past decades?
Edit: Yes, the U.S. and Europe are indeed in different economic positions, the U.S. can still avoid the spiral if it continues to attract skilled immigration and remains a low bureaucracy, easy-to do business environment.
Re: UK banks given six months to prepare for negative interest rates
#16Can someone explain this, Matt Levine-style? I mean, if someone offered to pay me interest to take out a loan, I'd immediately request MAXINT.
The point is precisely that the Powers That Be want you to take out MAXINT - and then unload it on the wider economy as cheap loans to stimulate the economy. Whether that second part actually happens, or banks just use this extra cash to stuff their balance sheets, well... it's a bit of an open question, to put it mildly.
The biggest problem is that the things people want to buy are in short supply. So the extra money doesn't actually help anything, you just get asset price inflation.
I want to buy a house. If everyone has access to cheap mortgages, then everybody can buy a house! But there is a hard limit on how fast we can build housing. Even renovating a home has the same problem. Contractors in my area are raising their hourly rate now because everybody wants their home renovated! But there aren't enough contractors for everyone, so the price just goes up.
Look at the video card market. There's a hard limit on the amount of video cards that the industry can produce. That doesn't change if suddenly everyone can afford the $2,500 price tags. The price just goes up by exactly the amount of money people get loaned!
And there's a hard limit on the amount of entertainment I can consume in a day. A person has about 16-20 hours a day MAX to consume media. We literally can't listen to any more music, there's not enough time in the day. I can't spend any more money on media because I am physically unable to consume more.
I don't see how this would stimulate anything? The reason I'm not buying anything isn't because I can't afford it, it's because it's not available at all! (Probably why the stock market is experiencing volatility right now - it's the only thing providing utility right now)
Re: UK banks given six months to prepare for negative interest rates
#17If chartered banks charge for ... holding cash ... don't people next create a new industry of unchartered financial institutions to hold money without charging so much? Like, safe deposit? Or insurance?
This seems like an ivory tower exercise that has not yet met the messy realities of the world.
Re: UK banks given six months to prepare for negative interest rates
#18So if I take a loan, it would pay itself off after a while?
I don’t think so.
All loans have terms and minimum payments. So if you borrow $1000 over a year at -1% you still have to make $990 in payments, or you will default.
Re: UK banks given six months to prepare for negative interest rates
#19If chartered banks charge for ... holding cash ... don't people next create a new industry of unchartered financial institutions to hold money without charging so much? Like, safe deposit? Or insurance? This seems like an ivory tower exercise that has not yet met the messy realities of the world.
Those already exist. My credit union pays me to store my cash there.
Re: UK banks given six months to prepare for negative interest rates
#20Its about time it became normal in the UK for accounts to carry fees. I dont know how retail banking can continue without them. Esp the new fintechs they will have near-zero revenue coming in and have to pay to hold cash.
If you go to your local branch and ask to pay some fees, I'm sure they can find a way to accommodate.