161–170 of 214 posts
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More like TP, antiobiotics, guns and ammunition.
If TP made it to the top of your list of useful things in a societal meltdown, you need to spend a bit more time roughing it.
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"I would argue it's artificial to set rates anywhere, and likely market rates without intervention would be close to zero." Why would interest rates be zero without intervention? Who would lend money to someone else for free?
The rate the central bank sets is effectively a floor below which banks will not lend. The effective Federal Funds Rate in the U.S. is around 1.16% The one year Treasury rate is around 1.24%. People and banks are lending money to the government for one year for essentially .08%, and this is not entirely risk free. Rates went negative after the financial crisis, and German bond rates are below Treasuries. If banks cou…
In the absence of central banks it's likely the world would eventually settle on a single commodity to be used as money, and it's unlikely to be a commodity that's inflated into oblivion like fiat currencies. Additionally it's unlikely that people will somehow start loaning out money for a rate of almost 0%, why would people loan money (and therefore risk losing it) for a return of 0%? They'd be better off just holding onto it.
I'm still learning all the tendencies of these macroeconomic trends... So, this should mean mortgage loan rates, savings account interest rates, and inflation are all now on an upward trend. Right? And thus housing prices should begin to curb, since the cost of loans making buying houses more expensive and less appealing, thus lowering demand. (I've already noticed increasing savings account rates and mortgage rates,…
> and inflation are all now on an upward trend. Right? Not inflation. Inflation isn't going up much anywhere. It's a conundrum for central bankers. The old model may no longer work. Normally, when unemployment goes low enough, wages and then prices go up. That hasn't really happened. Instead, house prices (in Canada) and consumer debt are rising.
It is (and has been for a while) the goal of the Bank of Canada to keep inflation between 1% and 3%: http://www.bankofcanada.ca/core-functions/monetary-policy/in...
And it is not doing too bad: https://tradingeconomics.com/canada/inflation-cpi
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When you're talking about billions: If you hold it physically, you have to store it and secure it, which costs money. If you deposit it in a commercial bank, it'll be less safe than German bonds.
Wait, what? Isn't most money electronic anyway? How does it cost (O(n)) money to keep an entry in a digital record?
(I realize we're talking about German banks, and FDIC is a US institution)
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>They don't, that's why Reference? See my answer to RobertoG for more details.
That answer is incorrect. Bank can and will loan money they do not have http://www.investopedia.com/articles/investing/022416/why-ba... Neither there is a connection of saving account returns and discount rate. In contrast connection of the discount rate and CC rate is explicit http://hudsonsbaycredit.capitalone.ca/docs/Hudson_Bay_Cardho... very first page.
So even though banks aren't really lending out savings in the way people assume, they still need to keep their saving account returns competitive and somewhat related to money they're making on loans. The main difference between the incorrect model and how banks actually work has to do with the willingness of the banking industry as a whole to lend out money and the availability of credit - that genuinely is pretty much untethered from saving rates.
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Technically, yes, you are on the hook for a balloon payment. In practice, however, you would get a new mortgage for the remainder owing. You can, of course, be screwed in the event of rising interest rates or collapsing property values. Unlike the US, there are hefty fees for early payoff of the mortgage, so if you were in the position to pay it off, you would probably want to wait until the end of the current mortga…
OK, got it. Frankly, it seems like a system that makes owning a home less attractive, but I suppose US policy has been driven by the idea that home ownership should be encouraged.
Which makes me think it's not really any special favoritism in the US...
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Mortgages are typically longer than 5 years.
Exactly. In a US 30 year mortgage, it is reasonable to expect a borrower to pay it off. In a 5 year mortgage, you will typically refinance after 5 years (unless you hit the jackpot in the interim).
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> and inflation are all now on an upward trend. Right? Not inflation. Inflation isn't going up much anywhere. It's a conundrum for central bankers. The old model may no longer work. Normally, when unemployment goes low enough, wages and then prices go up. That hasn't really happened. Instead, house prices (in Canada) and consumer debt are rising.
> It's a conundrum for central bankers. The old model may no longer work. It is (and has been for a while) the goal of the Bank of Canada to keep inflation between 1% and 3%: http://www.bankofcanada.ca/core-functions/monetary-policy/in... And it is not doing too bad: https://tradingeconomics.com/canada/inflation-cpi
This article expands that argument at length: http://business.financialpost.com/news/economy/the-phillips-...
The commonwealth countries are all facing a property bubble (Canada, New Zealand, Australia, etc). The household debt levels and property prices didn't taper off nearly as much following the 2008 US housing crisis and has pretty much continued unabated: http://www.huffingtonpost.ca/stephen-punwasi/real-estate-bub... Which is fascinating to consider that the Bank of Canada, et al, have let this happen for so long and…
> Which is fascinating to consider that the Bank of Canada, et al, have let this happen for so long and are only reacting now... In Canada this is because the real estate bubbles were confined to Vancouver and Toronto. Raising interest rates to cool down real estate in those two cities would have been bad for the rest of the country.
Property ownership in those two cities also isn't limited to being a resident of those cities either. A significant amount of properties are rented out and the landlord can live outside of the cities, so the effects of a drop in prices will be widely felt. Combined with the fact those two cities and surrounding areas represent a significant percentage of the total population.
The US housing crisis was itself limited to a group of areas in the country in varying degrees as well, for example Florida got hit way harder than most places. The group was just far larger given the country's population is 10x the size of Canada.
And Bank of Canada has started to add mortgage restrictions this year country-wide so they too see it as something that needs to be addressed nationally.
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OK, got it. Frankly, it seems like a system that makes owning a home less attractive, but I suppose US policy has been driven by the idea that home ownership should be encouraged.
It doesn't seem like there's anything radical about a standard, simple interest, fixed rate loan with no balloon payment. Setting aside questions of rate and term, your typical USA 20% down 30 year fixed mortgage is about as simple/ordinary/traditional as loans get. Which makes me think it's not really any special favoritism in the US...