Denmark's Jyske Bank lowers its negative rates on deposits
1–10 of 113 posts
Re: Denmark's Jyske Bank lowers its negative rates on deposits
#2What’s next?
Re: Denmark's Jyske Bank lowers its negative rates on deposits
#3> In August, Jyske became the first to offer a negative rate on a home loan, in effect paying customers 0.5% to borrow money for 10 years.
Surely this can't end well?
Here in Sweden the house prices are so high in cities it's almost impossible for young people to get a house, sometimes even an apartment. We've been waiting for the housing bubble to pop a while, but how long must we wait? The longer we do the worse it'll be.
Re: Denmark's Jyske Bank lowers its negative rates on deposits
#4When people borrow money for a house, they only consider the monthly payments for the mortgage and not the absolute amount of money they are borrowing. This means that low interest rates are the main reason behind surging house prices and is why people have to spend decades paying back loans and being vulnerable to a drop in house prices. It creates too much debt in society and generally makes the economy more fragile than it has to be. The low interest rates may seem like a helping hand to house buyers but it is in fact the opposite: a transfer of wealth to house owners from people seeking to enter the market, a transfer of wealth from the younger generations to the boomers. This must end if we want to avoid a repeat of the 2008 crisis. But with the current levels of government debt, it's hard to see a political solution.
Re: Denmark's Jyske Bank lowers its negative rates on deposits
#5On the one hand this sounds eminently stupid. On the other hand, it means there is some sort of de-linking of money and time.
Negative interest rates roughly imply that Denmark crowns have no ability to preserve wealth over time. If anyone gets paid in crowns they should attempt to spend them immediately and buy something durable.
It is hard to see how this is an improvement over letting money hold value over time. Now there will be more competition over scarce real resources instead of wealthy savers holding a "fake resource" of cash in a bank account. And anyone who doesn't understand interest rates might lost out from confusion.
Re: Denmark's Jyske Bank lowers its negative rates on deposits
#6When people borrow money for a house, they only consider the monthly payments for the mortgage and not the absolute amount of money they are borrowing. This means that low interest rates are the main reason behind surging house prices and is why people have to spend decades paying back loans and being vulnerable to a drop in house prices. It creates too much debt in society and generally makes the economy more fragil…
Honest question: how should people seeking to enter the market behave in such a situation?
Re: Denmark's Jyske Bank lowers its negative rates on deposits
#7When people borrow money for a house, they only consider the monthly payments for the mortgage and not the absolute amount of money they are borrowing. This means that low interest rates are the main reason behind surging house prices and is why people have to spend decades paying back loans and being vulnerable to a drop in house prices. It creates too much debt in society and generally makes the economy more fragil…
Could just build more houses, though.
Re: Denmark's Jyske Bank lowers its negative rates on deposits
#8> In August, Jyske became the first to offer a negative rate on a home loan, in effect paying customers 0.5% to borrow money for 10 years. Surely this can't end well? Here in Sweden the house prices are so high in cities it's almost impossible for young people to get a house, sometimes even an apartment. We've been waiting for the housing bubble to pop a while, but how long must we wait? The longer we do the worse it…
Prices have been stagnant for some time now, and tighter restrictions on new loans hopefully reduces the number of people that would be under water if prices dropped 15 or 25%. It would have a pretty bad effect on the economy as a whole though. I’d manage, but would stop spending for years.
Re: Denmark's Jyske Bank lowers its negative rates on deposits
#9What’s next?
A massive down turn.
Re: Denmark's Jyske Bank lowers its negative rates on deposits
#10Other than spreading it around multiple banks, the natural outcome of this will be increased investment, most likely in real estate at one end of the spectrum and on the other things like money market funds, treasury bonds, and to a lesser extent index tracker style ETFs.
If the trend spreads across other countries, and if you believe this is a trend that is hard to revert (falling interest rates), I'd say we're in for a few more years of the stock market climbing with bigger and bigger valuations at crazier revenue multiples. Even though lately it seems like everyone is predicting that a crash is right around the corner, I don't think it's likely without a big external event happening to disturb this trend. Either some cyber / regular war or some other event nobody is forseeing.
The 2008 big short dude recently predicted that the inflows of money into ETFs by a lot of very passive investors is gonna create a situation where big valuations are based on nothing other than people not having any other place to put their savings, but I think like in 2008, his prediction is very early again.
We'll see, interesting times ahead.