Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

UK banks given six months to prepare for negative interest rates

theguardian.com

Post reply on HN
Print view View original

41–50 of 112 posts

Re: UK banks given six months to prepare for negative interest rates

#41

Post by grey-area »

u678u wrote: post #21
stickfigure wrote: post #3

Can 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.

> I'd immediately request MAXINT. Would you really though. They're trying to avoid deflation, if/when that happens the value of property and shares falls each year. What would you do with your loan if all assets fall in value each year?

They're trying to avoid retail deflation. That is not usually related to asset deflation.

Asset inflation has been raging for at least a decade, maybe 2, inflating stock assets, housing and commodities, bitcoin and anything else which promises some return to unseen levels, since they started QE and dropped the low risk rate of return to 0. Retail inflation which they're trying to control is pretty much unaffected by QE and ZIRP and whatever levers they are pulling are not working, they just haven't noticed yet.

So at this point, if someone offers you free money, you say thanks very much and put it in the stock market, like everyone else, because where else can you get a return? And that goes on until the whole thing explodes in a panicked crash when public pretension differs too much from private reality.

Oops.

Re: UK banks given six months to prepare for negative interest rates

#42

Post by onion2k »

spacedcowboy wrote: post #28
1experience wrote: post #15

Can 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 ind…

Well, the Bank of England is also predicting a rebounding economy in the Summer for the UK because of the vaccine. A whole load of pent-up demand to live again, a dearth of travel opportunity so the money is spent in the UK, and everyone vaccinated so things open up ... So who knows ?

At the current rate of vaccinations, 1.5m a week, with people needing 2 shots (750,000 people a week), it'll take approximately a year to get to 90% of the adult population vaccinated with 2 shots: 50m adults * 0.9 / 750,000 = 60 weeks (I've knocked off 8 weeks because vaccinations have already started). The idea that people will be back out spending again in the summer is ... ambitious.

Re: UK banks given six months to prepare for negative interest rates

#43

Post by jonpurdy »

polskibus wrote: post #24
1experience wrote: post #15

Can 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 ind…

More importantly, has Japan ever recovered from such state?

I'm just a casual observer, but Japan had a "lost decade" post-bubble where average inflation and growth rates averaged 0%, but this has extended to a "lost two decades" now.

(Side note: Japan's cost of living has also not increased with the rest of the world, which is why it's much more affordable to travel there these days than it was before.)

One thing I don't understand (due to my own lack of knowledge) is related to real estate. Japan has been excellent by supplying enough medium and high density housing to keep housing prices relatively low and ensure individuals and families have access to that basic need. Presumably partially because of this (also because people generally don't want used houses), housing there isn't really considered an investment because the house is amortized over a 20-40 year period and demolished at the end of it. For those who know, how does this affect inflation and growth rates? (And feel free to correct anything I'm incorrect about.)

Re: UK banks given six months to prepare for negative interest rates

#44

Post by RobertoG »

JohnJamesRambo wrote: post #8
stickfigure wrote: post #3

Can 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.

It’s a negative interest rate for banks to keep their money with a central bank. It is supposed to discourage banks from hoarding money and stimulate the economy by giving out more loans. Like all things economic there are debates about if it works or not. https://www.cnbc.com/2020/06/12/do-negative-interest-rates-w...

It's obvious that it doesn't work. In order banks be able to lend money it's necessary the existence of business and households that want to spend money instead of saving.

What we are seeing, is the result of using the wrong tool, monetary policy instead of fiscal policy, because ideological reasons.

Re: UK banks given six months to prepare for negative interest rates

#45

Post by sschueller »

unyttigfjelltol wrote: post #17

If 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.

Switzerland and Denmark already have negative interest rates higher than Japan [1]. In Switzerland is will start to affect you if you have more than ~250k in the bank.

[1] https://en.wikipedia.org/wiki/List_of_countries_by_central_b...

Re: UK banks given six months to prepare for negative interest rates

#46

Post by GordonS »

websites222 wrote: post #26
1experience wrote: post #15

Can 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 ind…

Europe yes. US, no. The US is in an amazing position in terms of demography and growth. Aging population, but not immigrant averse like Japan and not an island. The US borders a rising economy with perfect demographics for growth (Mexico). The US is the least involved country in global trade. The US is increasingly disinterested in being the world police, so that capability can be deployed to protect economic interes…

> not immigrant averse like Japan and not an island

As the past 4 years have demonstrated, there is a very large segment of the US population is very much against immigration, and would happily turn the country into an "island" by building walls around the land borders.

Re: UK banks given six months to prepare for negative interest rates

#47

Post by mrsuprawsm »

notahacker wrote: post #31
stickfigure wrote: post #3

Can 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 bank isn't going to pay anyone interest to take out a loan, still less a loan for MAXINT. It still has to cover repayment defaults and make a profit. But changing the base rate from 0.1% to -0.5% incentivises the banking system to loan to consumers and businesses at lower rates

You say that, but this is already happening in some places: https://www.theguardian.com/money/2019/aug/13/danish-bank-la...

Re: UK banks given six months to prepare for negative interest rates

#48

Post by miohtama »

unyttigfjelltol wrote: post #17

If 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.

There is a pain threshold that cannot be exceeded and people would opt-in to store paper bills. Central banks know this.

Here is a good speech from ECB:

https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200...

Re: UK banks given six months to prepare for negative interest rates

#49

Post by websites222 »

GordonS wrote: post #46
websites222 wrote: post #26

Earlier quoted context omitted.

Europe yes. US, no. The US is in an amazing position in terms of demography and growth. Aging population, but not immigrant averse like Japan and not an island. The US borders a rising economy with perfect demographics for growth (Mexico). The US is the least involved country in global trade. The US is increasingly disinterested in being the world police, so that capability can be deployed to protect economic interes…

> not immigrant averse like Japan and not an island As the past 4 years have demonstrated, there is a very large segment of the US population is very much against immigration, and would happily turn the country into an "island" by building walls around the land borders.

The last four years can’t really be compared to the last 2000 of Japan’s. Immigration is already ingrained in American culture. The aging boomers will die and be replaced by the most ethnically diverse generation in American history.

Re: UK banks given six months to prepare for negative interest rates

#50

Post by frockington1 »

GordonS wrote: post #46
websites222 wrote: post #26

Earlier quoted context omitted.

Europe yes. US, no. The US is in an amazing position in terms of demography and growth. Aging population, but not immigrant averse like Japan and not an island. The US borders a rising economy with perfect demographics for growth (Mexico). The US is the least involved country in global trade. The US is increasingly disinterested in being the world police, so that capability can be deployed to protect economic interes…

> not immigrant averse like Japan and not an island As the past 4 years have demonstrated, there is a very large segment of the US population is very much against immigration, and would happily turn the country into an "island" by building walls around the land borders.

Compared to other nations, the US has the least restrictive immigration laws. The US also benefits by bordering Canada with some of the most restrictive immigration laws. If you want to go where there is growth, there's no other option
Post reply on HN