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

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

#61

Post by dev_dull » Sat, Sep 21, 2019, 2:21 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)?

No it’s he opposites! It increasing the pool of money and deflates its value. You are effectively encouraged to take out large loans.

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

#62

Post by sword_smith » Sat, Sep 21, 2019, 2:24 PM UTC

firebacon wrote: post #53

sword_smith wrote: post #47

Earlier quoted context omitted.

Absolutely. But not all land is created equal, most people want to live near a big jobs market, meaning near a big city. So the price of this land will inevitably go up.that being said, I am sure there is a lot municipalities could do to make housing more affordable.

True. Still, one alternative model to consider is one where the recent trend of opportunity concentrating in a few big cities could reverse. Either due to market forces (cheaper everything outside of the big cities), remote work becoming more prevalent, or both.

I would live to see this. But are there any indications that this is actually happening?

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

#63

Post by detaro » Sat, Sep 21, 2019, 2:24 PM UTC

dev_dull wrote: post #60

JamisonM wrote: post #48

It strikes me that with an absurdly low debt-to-gdp ratio of 34% and negative interest rates maybe the Danish government should invest more money in their economy. Maybe leverage the market to build the enormous amount of green infrastructure they and the world needs, the returns don't need to be that high to pay off.

Denmark has high oil and gas reserves, which partly is why their debt-to-gdp is so low. Why would they benefit in green energy infrastructure?

"high reserves" that according to Denmarks government after 2032 will not be able to cover Denmarks own oil consumption and likely be exhausted before 2050.

Every barrel of oil they don't use now either delays that or brings them money to invest, and using the income now to prep for later seems like a sane strategy.

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

#64

Post by gridlockd » Sat, Sep 21, 2019, 2:25 PM UTC

JamisonM wrote: post #45

gridlockd wrote: post #22

Soon enough we may find out that too much is invested into the expectation that interest rates will go down indefinitely. When inflation finally strikes, there will be no tools left to fight it. Getting deeply into debt and buying as many assets as you can would then be the right thing to do. Obviously, this is not financial advice.

Isn't the primary tool to fight inflation with an increase in interest rates? And if interest rates are negative doesn't that mean that there is lots of room to adjust them? It strikes me that the problem is that the tools to fight deflation are inadequate. How much growth and prosperity has been sacrificed to avoid the threat of inflation that never arose?

> And if interest rates are negative doesn't that mean that there is lots of room to adjust them?

No, because the economy has already adapted to these low interest rates. All the money that was put into high-risk instruments at relatively low yields will be desperate to move into these "low risk" bonds, which causes a huge selloff, which will be especially disastrous to those who bought in on margin.

Furthermore, those entities that have gotten used to financing old debt with ever cheaper new debt will have trouble finding new affordable debt.

> It strikes me that the problem is that the tools to fight deflation are inadequate.

What deflation? You mean the "deflation" of CPI staying below 2%? What about asset price inflation?

> How much growth and prosperity has been sacrificed to avoid the threat of inflation that never arose?

What real economic growth has been achieved by this unprecedented money-creation spree? Rising prices do not equal prosperity.

What about Japan, or the Eurozone? They have even lower interest rates and they're once again stagnating. You really believe if money was even cheaper, even more growth could be achieved?

We do have massive asset price inflation. We also have significant service-sector and rent price inflation. The CPI is only stable because productivity improvements have kept prices at bay for many consumer goods:

https://perspectives.pictet.com/wp-content/uploads/2015/04/U...

However, many of these consumer goods aren't made in the US. The dollar has been strong because, globally speaking, interest rates on it are high. If the US went back to QE and zero-interest, you could easily see a 25% drop in the value of the dollar, which immediately shows up as inflation for imported goods.

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

#65

Post by pjc50 » Sat, Sep 21, 2019, 2:25 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…

The situation is, on one side, concentrations of wealth that are too large to invest in anything that captures a positive return; and on the other side, an endless list of things that desperately need investment but cannot capture returns to the individual investor, such as decarbonisation and healthcare.

Negative rates are the market signalling that it's time for a wealth tax. Although these are tricky to implement because wealth can be moved very easily.

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

#66

Post by firebacon » Sat, Sep 21, 2019, 2:29 PM UTC

sword_smith wrote: post #62

firebacon wrote: post #53

Earlier quoted context omitted.

True. Still, one alternative model to consider is one where the recent trend of opportunity concentrating in a few big cities could reverse. Either due to market forces (cheaper everything outside of the big cities), remote work becoming more prevalent, or both.

I would live to see this. But are there any indications that this is actually happening?

Indications of a net change - not sure, but individual examples, yes. For example, some parts of Eastern Germany have seen a trend reversal in recent years. Also a number of previously poor ("cheap") regions in southern Europe are experiencing a massive investment and tourism fueled boom. Portugal seems like a good example for that.

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

#67

Post by ta1234567890 » Sat, Sep 21, 2019, 2:34 PM UTC

roenxi wrote: post #54

ta1234567890 wrote: post #50

Earlier quoted context omitted.

> 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. A crisis is not an economic fact that magically happens when some predetermined values for some set of indicators are reached. A crisis is a mix of two things: 1) a big financial/economic issue that affects an important sector of the economy, 2) widespread p…

Actually 'crisis' just means 'decisive change is impending'. There doesn't have to be panic. Coordinated or systemic movement of money in any form can be a crisis. There doesn't have to be reporting or emotion for the situation to spiral out of control. That is to say, the panic can follow the crisis.

> That is to say, the panic can follow the crisis.

You are technically correct. Maybe I should have used the word recession instead.

What I mean is that a lot (most?) of the damage in a crisis is actuallly done by big masses of people reacting to it rather than the crisis itself.

Think about bank runs, widespread stock shorting and selling, people not investing because of uncertainty, lenders abruptly calling their loans, etc.

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

#68

Post by benj111 » Sat, Sep 21, 2019, 2:55 PM UTC

If I lower the interest rate it goes down, if I lower a negative rate it goes up?

Either way, I was unsure which way rates had moved just from reading the title.

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

#69

Post by maze-le » Sat, Sep 21, 2019, 2:55 PM UTC

sword_smith wrote: post #33

bboygravity wrote: post #17

Earlier quoted context omitted.

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 destabil…

I think the main reason behind the better economic situation in the 1871-1914 period was not a deflationary economy, but the steady increase in factory output -- the industrialization was on its height -- and medical knowledge -- proper sanitation, proper medical procedures, hygiene. Add to that the benefits Europe and the US reaped from colonial imperialism: the "masses" gained access to commodities like sugar, tea, coffee but also cheap alcohol and opium.

Usually it was not a gradual improvement in the lifes of common people from poor farmers to well-off middle class. By far the most people not employed in the agrarian sector were working class (working in factories, mines, etc.) and their situation was, compared to today, a hellish nightmare: overcrowded slums, poor access to water and medicine, unstable food-supply. These conditions only improved slightly by the end of that period, usually out of pressure/fear of socialist/communist mass agitation.

-----

You are right, the life of most people living in that time period improved significantly. But I would say despite of a deflationary economy, not because of it. And only a minimal percentage of those were middle class.

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

#70

Post by WillPostForFood » Sat, Sep 21, 2019, 3:02 PM UTC

Yetanfou wrote: post #43

hourislate wrote: post #37

Earlier quoted context omitted.

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

Add Sweden as well, same story here. The national bank (Riksbanken) can not increase interest rates because it would have disastrous consequences for the large majority of over-extended loan takers. The low interest rates in their turn lead to the value of the Swedish currency plummeting. No matter what they do, a 'correction' is unavoidable - either the Swedish crown goes to junk status or the number of foreclosures…

If you have a fixed rate loan, inflation is amazing. It is like free money.

Inflation: bails out debtors, punishes savers

Deflation: punishes debtors, rewards savers