Denmark's Jyske Bank lowers its negative rates on deposits • Hacker News Board

Re: Denmark's Jyske Bank lowers its negative rates on deposits

#11

Post by flerchin » Sat, Sep 21, 2019, 1:02 PM UTC

roenxi wrote: post #5

On 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. N…

Doesn't it mean that the crowns are worth more over time (negative inflation)?

Re: Denmark's Jyske Bank lowers its negative rates on deposits

#12

Post by paulpauper » Sat, Sep 21, 2019, 1:03 PM UTC

sword_smith wrote: post #4

When 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…

>When 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.

That is how borrowing works. Otherwise the lender would not make a profit.

>It creates too much debt in society and generally makes the economy more fragile than it has to be.

and yet the post-2009 economic expansion is the longest ever, and this is in spite of all the anxieties over tariffs and trade wards and the fed raising rates.

> The low interest rates may seem like a helping hand to house buyers but it is in fact the opposite: a transfer of wealth from house owners to people seeking to enter the market, a transfer of wealth from the younger generations to the boomers.

Plenty of millennials own homes. There are tons of examples on Reddit of people in their 20s and 30s with homes and investments. Low rates makes it easier to get a mortgage and compound wealth by owning a home. Rather than a wealth transfer ,which suggests a zero sum game, more wealth is being created.

Re: Denmark's Jyske Bank lowers its negative rates on deposits

#13

Post by sword_smith » Sat, Sep 21, 2019, 1:06 PM UTC

parasight wrote: post #6

sword_smith wrote: post #4

When 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?

I guess many people will not, and that this will lead to a higher rate of renting. That promotes economic inequality as the middle class is then prevented from entering an important way building savings: owning a house outright.

Re: Denmark's Jyske Bank lowers its negative rates on deposits

#14

Post by roenxi » Sat, Sep 21, 2019, 1:07 PM UTC

flerchin wrote: post #11

roenxi wrote: post #5

On 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. N…

Doesn't it mean that the crowns are worth more over time (negative inflation)?

Quite unlikely if they are following the current monetary trend. Negative interest rates are going to be matched with large amounts of monetary creation by the banks and central banks (note they are paying people to borrow money).

If someone were to try that policy in an English speaking country I'd be very confident that the creation would outweigh the destruction and that there will be massive wealth transfers from people who have cash savings to people who borrow money. Denmark will probably go that way too.

Re: Denmark's Jyske Bank lowers its negative rates on deposits

#15

Post by sword_smith » Sat, Sep 21, 2019, 1:09 PM UTC

viburnum wrote: post #7

sword_smith wrote: post #4

When 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.

Yes. But the high house prices feed through to higher land prices so the newly built houses will also be more expensive than they otherwise would have been.

Re: Denmark's Jyske Bank lowers its negative rates on deposits

#16

Post by samsonradu » Sat, Sep 21, 2019, 1:09 PM UTC

paulpauper wrote: post #12

sword_smith wrote: post #4

When 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…

>When 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. That is how borrowing works. Otherwise the lender would not make a profit. >It creates too much debt in society and generally makes the economy more fragile than it has to be. and yet the post-2009 economic expansion is the longest ever, and this is in spite of all t…

Why does owning a home compound wealth? Honest question.

Re: Denmark's Jyske Bank lowers its negative rates on deposits

#17

Post by bboygravity » Sat, Sep 21, 2019, 1:11 PM UTC

sword_smith wrote: post #4

When 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…

IMO this is the end game.

Scenario 1: If interest rates go up significantly this would bankrupt entire nations such as Italy, France and Greece (again) + runaway deflation. Conclusion: interest rates cannot and will not go up. This would be political suicide. Also deflation is the number 1 enemy of central banks and the economy in general.

Scenario 2: Lowering interest rates causes rich people, businesses and governments to lend as much as they possibly can to convert debt into "stuff" that they can charge more currency for. This causes zombification of governments, businesses and rich people: productivity of real estate is 0, productivity of businesses that can't go bankrupt (because you can't miss interest payments if there's no interest) goes towards 0, same for governments. Startups struggle to compete with larger companies, because they don't have the capital (and political lobby) and if they can somehow compete they just get bought. Also perhaps most importantly: this increases the divide between rich and poor and thus social unrest. The poor can't get significant credit so they are forced to finance the "stuff" that the rich own by renting it from them. AKA: the rich are home owners and the poor are home renters at ever increasing rents.

I don't believe for a second that interest rates will go up in the years to come. So scenario 2 is where we are (heading). Smells of hyperinflation to me. Scenario 1 = 1930 all over again.

I don't see any possible positive outcome, unless by some miracle the trade wars (and other government control over markets) end. And even then...

Disclaimer: economics n00b interpreting central bank president talks and stock trader news websites.

Re: Denmark's Jyske Bank lowers its negative rates on deposits

#18

Post by ek750 » Sat, Sep 21, 2019, 1:13 PM UTC

paulpauper wrote: post #12

sword_smith wrote: post #4

When 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…

>When 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. That is how borrowing works. Otherwise the lender would not make a profit. >It creates too much debt in society and generally makes the economy more fragile than it has to be. and yet the post-2009 economic expansion is the longest ever, and this is in spite of all t…

I think both arguments sound right to me in some degree.

It is a wealth transfer, and asset prices can’t go up infinitely, unless wages rise equally for the population of house buyers. It seems wages have been stagnating in the US for a while now.

When there’s a shock or wide drop, the latest buyers will be left holding the bag.

But nobody knows for sure, maybe it really is different this time.

Re: Denmark's Jyske Bank lowers its negative rates on deposits

#19

Post by samsonradu » Sat, Sep 21, 2019, 1:14 PM UTC

bboygravity wrote: post #17

sword_smith wrote: post #4

When 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…

IMO this is the end game. Scenario 1: If interest rates go up significantly this would bankrupt entire nations such as Italy, France and Greece (again) + runaway deflation. Conclusion: interest rates cannot and will not go up. This would be political suicide. Also deflation is the number 1 enemy of central banks and the economy in general. Scenario 2: Lowering interest rates causes rich people, businesses and governm…

You kind of described Japan’s economy.

Re: Denmark's Jyske Bank lowers its negative rates on deposits

#20

Post by sword_smith » Sat, Sep 21, 2019, 1:15 PM UTC

paulpauper wrote: post #12

sword_smith wrote: post #4

When 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…

>When 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. That is how borrowing works. Otherwise the lender would not make a profit. >It creates too much debt in society and generally makes the economy more fragile than it has to be. and yet the post-2009 economic expansion is the longest ever, and this is in spite of all t…

A growing economy should all other things equal lead to a higher home ownership rate as the rising productivity means that fewer man hours are required to build a house. However the low interest rate environment the US (and the whole Western world) has experienced since 2001 has led to a declining rate of home ownership.

> Historically speaking, the homeownership rate has risen above the 50-year low it reached during the second quarter of 2016 when it clocked in at 62.9 percent. Still, it's several percentage points away from its pre-recession peak of 69.2 percent. [0]

[0]: https://www.thebalance.com/the-homeownership-rate-what-is-it...

Edit: you can also have a look at the graph on page five here. It shows that the home ownership rate topped around 2003 and has been on a steady decline since then:

https://www.census.gov/housing/hvs/files/currenthvspress.pdf