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Denmark's Jyske Bank lowers its negative rates on deposits

reuters.com

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

#31

Post by CalRobert »

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?

Hard to say, but I saved like hell and then looked for houses no bank would ever lend on, and no landlord would want. Got a dumpy old architecturally protected house on three acres an hour from the city (by train) for €68k. Of course it's a huge pain in the ass (thatcher started yesterday) but I had almost no buying competition.

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

#32

Post by nickjj »

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.

Yep exactly.

The same thing happens with cars too. The salesman does everything in their power to focus only on the monthly payment amount instead of what you're really paying total in the end.

It's way worse for houses because you can end up in a situation where if you make non-optimal choices with mortgages you can be paying off your mortgage for multiple generations on a low end house. Interest is crazy, but unfortunately most people don't pay enough attention to it or their debt (which makes sense since you need to go out of your way to really learn about it).

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

#33

Post by sword_smith »

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…

bboygravity: I agree with everything you just said except that deflation is bad for the economy in general. It doesn't have to be. The Guilded Age (Belle Epoque in Europe), 1871-1914 had several percentages of deflation each year and this was a period where a massive number of people went from being poor farmers to middle class city dwellers and the period saw a massive growth in productivity.

Deflation will destabilize the economy if there is massive borrowing, and since most Western government owe about 100 % of GDP, they will prevent deflation for the very reasons you describe. But the middle class should embrace deflation and so should the general economy as it encourages savings which encourages investments which is where the growth in productivity comes from.

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

#34

Post by wrycoder »

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…

Negative interest rates indicate deflation. In deflation, cash is king - people are willing to hold cash rather than make investments or buy stuff. This generally reduces economic activity and also makes it difficult for governments to stimulate by reducing rates.

(In an inflationary environment, the wise thing is to put your cash into hard assets, since it will be worth less in the future. Deflation in the opposite.)

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

#35

Post by gridlockd »

nabla9 wrote: post #26
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…

You get it it backwards. Denmark is facing deflation, not inflation. Inflation in Denmark august 2019 - july 2019 was -0.39%. That is, the value of money is increasing.

> That is, the value of money is increasing.

The value of money in terms of assets has been steadily decreasing.

Granted, most people don't think in terms of assets. It takes a while for asset prices to bleed through to consumer prices.

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

#36

Post by baybal2 »

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…

My employer is paying for really expensive publications on economics for electronics industry.

Some of the best paid economists in the world say to avoid capex with longer than 5 year payback time as rates are almost destined to go up due to multiple strong factors, including emerging markets becoming more attractive investments.

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

#37

Post by hourislate »

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…

We can add Canada to the list. If Interest rates were to rise just a few percent, it would bankrupt the entire country.

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

#38

Post by 14 »

samsonradu wrote: post #16
paulpauper wrote: post #12

Earlier quoted context omitted.

>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.

This stuff is honestly way over my knowledge but the way I see it, as a renter wanting to buy in the next couple years, if I own a house I am paying a mortgage. That gives me equity every payment. So every month instead of my landlord getting my money the bank will and in the end I own the house so can sell it back. Also owning a house opens all sorts of opportunities a renter does not get. Subsidies to install solar panels and save energy would go to the home owner. If you own a house and want a loan for a car let’s say, you automatically get a better interest rate then me because I am higher risk. There are all sorts of ways owning a house can make or save you money. But based on my understanding of this article the entire value of houses will crash at one point as we can’t keep increasing the costs so when the market finally realizes we have been over selling, the people holding the houses at that point risk devaluation of their home and potentially lost all their investments. Again I am trying to figure what this all means and there are certainly a lot more knowledgeable people here that know more then my layman’s view.

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

#39

Post by roenxi »

wrycoder wrote: post #34
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…

Negative interest rates indicate deflation. In deflation, cash is king - people are willing to hold cash rather than make investments or buy stuff. This generally reduces economic activity and also makes it difficult for governments to stimulate by reducing rates. (In an inflationary environment, the wise thing is to put your cash into hard assets, since it will be worth less in the future. Deflation in the opposite.…

Interest rates are being set/managed by small technocratic committees in pretty much every country I've looked into. I'm a cynic and I don't believe they are as politically independent as most claim to be either. Interest rates set in that manner don't indicate anything about the underlying real economy.

EDIT And as I'm arguing elsewhere in the thread, they measure inflation and it is positive.

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

#40

Post by the8472 »

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…

> and being vulnerable to a drop in house prices

And there are no financial constructs to spread the risk?

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