Interest Rates: Naturally Negative? • Hacker News Board

Re: Interest Rates: Naturally Negative?

#81

Post by gnopgnip » Wed, Aug 14, 2019, 2:40 AM UTC

ac29 wrote: post #55

everybodyknows wrote: post #54

Earlier quoted context omitted.

If in the U.S., buy your $10k quota of Savings Bond, Series I: Pays at least the CPI-U inflation rate, liquid after one year, favorable tax treatment, highly convenient. https://treasurydirect.gov/indiv/research/indepth/ibonds/res...

At least at the moment, it would seemingly make more sense to invest in 1-year treasury bonds. The interest rate is higher, they are more liquid, they are more convenient to buy and sell, and they are taxed the same as I-bonds. There's also no limit to the amount you can buy.

If you expect interest rates to go down in the future, the 10 year bonds would be a better investment

Re: Interest Rates: Naturally Negative?

#82

Post by tim58 » Wed, Aug 14, 2019, 2:44 AM UTC

outworlder wrote: post #52

eigenvalue wrote: post #44

Earlier quoted context omitted.

My guess is that these analyses by insurance companies don't properly take into account the risk of theft. All that cash in a bunker makes a very appealing target for thieves, both insiders and outsiders. Also, if it starts happening with any frequency, the central banks will just forbid hording of cash (e.g., by refusing to allow member banks to provide the cash if it exceeds a certain amount).

> My guess is that these analyses by insurance companies don't properly take into account the risk of theft. So your guess is that insurance companies, companies for which their entire business model revolves around risk management, are not taking into account something as mundane as risk of theft? That's a... curious line of reasoning.

I bet they even have theft insurance.

Re: Interest Rates: Naturally Negative?

#83

Post by AnimalMuppet » Wed, Aug 14, 2019, 2:44 AM UTC

caseysoftware wrote: post #80

caseysoftware wrote: post #76

Earlier quoted context omitted.

It depends on how badly you want to drive "growth". If you have $1000 today and can either spend it now or put it in the bank and withdraw $999 a year from now, what would you do? I suspect some would spend it now. But what if that number goes down to $990 or $975? More and more people will be willing to spend it now instead of savings therefore "growing" the economy now.

Denmark has introduced a negative interest rate mortgage. That's an interesting one because if you borrow $200k today and only owe $195k in 10 years, what happens? First, since you don't have to make payments, you can't default. If you can't default, why bother with qualification? If you don't have to qualify, is there an upper limit to how much you can/should borrow? If there's no upper limit and you never have to p…

No, I'm pretty sure there's going to be an upper limit, and it's going to be somewhat less than 100% of the purchase price. It's not carte blanche to borrow unlimited amounts of money.

In fact, I would be surprised if you could get away with no payments (a balloon payment loan, as it were). I would be rather shocked if they were offering such loans.

Absent data that they are actually offering such loans (balloon and/or untethered to the price of the property), I find your conclusions unwarranted.

Re: Interest Rates: Naturally Negative?

#84

Post by thdxr » Wed, Aug 14, 2019, 3:01 AM UTC

allana wrote: post #77

aalleavitch wrote: post #75

The reason that there's a naturally negative interest rate isn't because "people are getting better at saving". The reason there's a naturally negative interest rate is because over half of the American population owns less than nothing; they have more debts than assets. Investors simply own too much wealth, and the general public owns too little. The economy is so lopsided that investment is yielding a negative rate…

Money doesn't have high velocity in the upper echelons of society compared to in the bottom half. One dollar will pass through many hands if paid to a person in the lower half of our economy, while in the top 10% this same dollar barely makes it into one other person's hands, let alone multiple. The economically disadvantaged chunk of society has grown as middle wage jobs have disappeared, while their wages have effe…

Do you have a source for your money velocity claim? Intuition implies it would be the opposite

Re: Interest Rates: Naturally Negative?

#85

Post by orangecat » Wed, Aug 14, 2019, 3:05 AM UTC

aalleavitch wrote: post #75

The reason that there's a naturally negative interest rate isn't because "people are getting better at saving". The reason there's a naturally negative interest rate is because over half of the American population owns less than nothing; they have more debts than assets. Investors simply own too much wealth, and the general public owns too little. The economy is so lopsided that investment is yielding a negative rate…

over half of the American population owns less than nothing

Median net worth is $97k, and between 80 and 90 percent of households are above zero: https://dqydj.com/net-worth-brackets-wealth-brackets-one-per...

Re: Interest Rates: Naturally Negative?

#86

Post by djyaz1200 » Wed, Aug 14, 2019, 3:25 AM UTC

5 months ago on HN...

10 points by djyaz1200 5 months ago | parent [-] | on: U.S. personal income posts first drop in over thre...

"We can't sit there and leave interests rates low forever" ...says who? What force dictates that the equilibrium for rates must be higher? Yes that's historically been the case but that doesn't mean that's the right path for us now and in the future. I would argue that low interest rates will be and need to be the new normal.

Interest is the ultimate rent seeking activity. The fed funds rate is a form of price fixing for banks whereby they collectively decide how much interest they can extract from the economy without killing it. Why must this be the case, the economy should be allowed to run much hotter for much longer.

Inflation is less of a risk now because of technology + globalization, right now we are experiencing significant deflationary pressure as products and labor converge towards global pricing/wages.

Our economy and government will be in very serious trouble if we have to pay higher interest on our significant national debt, so the government has a big interest (pun intended) in keeping rates low to protect its own financial solvency.

Finally, high interest rates imply money is scarce and that's far from the case now. Having large sums of money is not what it used to be, you're competing against a lot of other people and organizations seeking to deploy that money productively for a return. This generates downward pressure on market interest rates as evidenced by European Central banks going below zero to negative rates.

Re: Interest Rates: Naturally Negative?

#87

Post by internet_user » Wed, Aug 14, 2019, 3:34 AM UTC

opportune wrote: post #2

I understand why you would want to set interest rates negative if your central bank is going to buy up all that debt, but as an individual or institutional investor why would you ever want to hold something with negative interest instead of cash? Why is there even a market for a bond with negative interest rates at all, since compared to a $X bond with negative interest, $X in currency seemingly carries less risk, mo…

currency would be on deposit at some bank, so it would essentially be a claim on that bank's balance sheet.

Bonds are claims on sovereigns with a printing press.

What has a lower chance of default?

Re: Interest Rates: Naturally Negative?

#88

Post by aalleavitch » Wed, Aug 14, 2019, 3:36 AM UTC

orangecat wrote: post #85

aalleavitch wrote: post #75

The reason that there's a naturally negative interest rate isn't because "people are getting better at saving". The reason there's a naturally negative interest rate is because over half of the American population owns less than nothing; they have more debts than assets. Investors simply own too much wealth, and the general public owns too little. The economy is so lopsided that investment is yielding a negative rate…

over half of the American population owns less than nothing Median net worth is $97k, and between 80 and 90 percent of households are above zero: https://dqydj.com/net-worth-brackets-wealth-brackets-one-per...

I'm basing that claim on this: https://www.peoplespolicyproject.org/2019/06/14/top-1-up-21-...

https://www.federalreserve.gov/releases/z1/dataviz/dfa/

>To derive this, I initially take the nominal net worth aggregates for each wealth group that are provided by the Federal Reserve and subtract out consumer durables. Consumer durables are things like cars and fridges that many academics who work on wealth distributions do not consider wealth. The average person in the top 1 percent owns around 32x as many consumer durables (in dollar terms) as the average person in the bottom 50 percent owns. So the subtraction of them reduces the inequality between the top 1 percent and bottom 50 percent.

From there, I adjust the 1989 figures to 2018 dollars using the CPI-U-RS price index. This is what the Federal Reserve also does to adjust wealth figures over time in its Survey of Consumer Finances reports.

What the final product reveals is a 2018 where the top 1 percent owns nearly $30 trillion of assets while the bottom half owns less than nothing, meaning they have more debts than they have assets. This follows from 30 years in which the top 1 percent massively grew their net worth while the bottom half saw a slight decline in its net worth.

Re: Interest Rates: Naturally Negative?

#89

Post by remarkEon » Wed, Aug 14, 2019, 3:44 AM UTC

thdxr wrote: post #84

allana wrote: post #77

Earlier quoted context omitted.

Money doesn't have high velocity in the upper echelons of society compared to in the bottom half. One dollar will pass through many hands if paid to a person in the lower half of our economy, while in the top 10% this same dollar barely makes it into one other person's hands, let alone multiple. The economically disadvantaged chunk of society has grown as middle wage jobs have disappeared, while their wages have effe…

Do you have a source for your money velocity claim? Intuition implies it would be the opposite

How so? It checks with my intuition quite fine. Do you mean as a total volume of dollars earned?

Re: Interest Rates: Naturally Negative?

#90

Post by gruez » Wed, Aug 14, 2019, 3:45 AM UTC

ErikAugust wrote: post #63

gpm wrote: post #61

Earlier quoted context omitted.

I would argue that the reason is simply that physically holding cash has a negative interest rate since you have to pay for a place to keep it, people to protect it, and accept the risk that it gets damaged, lost, or stolen. This applies whether you are a person with a wallet/mattress, or a bank with a high security vault.

Yes, and due to inflation.

>and due to inflation.

That happens regardless of the interest rate and affects both cash and bond/treasuries.