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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

#81

Post by lawn »

detritus wrote: post #71
lawn wrote: post #3

> In August, Jyske became the first to offer a negative rate on a home loan, in effect paying customers 0.5% to borrow money for 10 years. Surely this can't end well? Here in Sweden the house prices are so high in cities it's almost impossible for young people to get a house, sometimes even an apartment. We've been waiting for the housing bubble to pop a while, but how long must we wait? The longer we do the worse it…

> We've been waiting for the housing bubble to pop a while, but how long must we wait? The longer we do the worse it'll be. As someone who moved to London far too long ago and has expected some miraculous drop in house prices every time the economy catches a sniffle - stop waiting. It'll never happen. I mean, it may do, but to all practical degrees, house prices will creep upwards forever. There's no 'right time' to…

Just as an anecdote we moved away. Our friends moves to the city and buy houses for 10x what we bought ours for, and smaller ones too.

Of course it's not possible for everyone and there are sacrifices with living in a small community as we do.

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

#82

Post by JamisonM »

gridlockd wrote: post #64
JamisonM wrote: post #45

Earlier quoted context omitted.

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, tho…

The argument that the central banks couldn't fight inflation by raising rates is sort of undermined by the fact that central banks have raised rates in very recent history and there was no catastrophe, in 2011 the ECB raised rates 1/2% and all the Eurozone got was a stunted recovery. The US Fed had been steadily raising rates since 2016 and has since admitted that it was a mistake and reversed course.

The tools to fight deflation/low-inflation are mostly left in the hands of government spending, which unfortunately governments refuse to do for political reasons, the central bank's tools are limited.

   What about Japan, or the Eurozone?
What about them? The story you are telling is the some one from the 90's about Japan and it has been wrong so far, at what point is there enough evidence to prove that Japan was right to keep interest rates low? Furthermore Abenomics has been largely a success, which is doubling-down on those policies plus being willing to pile on even more debt, raising an expectation of future inflation to create investment (not quite exactly but more or less as Krugman encouraged them to in the 90's).

The Eurozone's problem is clearly austerity in the face of the structural issues that the single currency creates, as long as the wealthy members are unwilling to spend and the rules prevent the poorer members from spending they are caught in a low-demand trap of their own creation. https://www.jstor.org/stable/24385696

  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?
I believe that higher rates will hurt them (supported by the evidence from the 2011 ECB & 2015 Fed rate increases and the study of their consequences) and, as I stated in my original post they, like the Danish, should be spending money on things they need to stimulate their economy and invest in the future.

If you can borrow money at negative interest rates and build assets of any future value then you should do it and make citizens' lives better now and in the future.

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

#83

Post by Retric »

tom_mellior wrote: post #74
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…

> Also deflation is the number 1 enemy of central banks and the economy in general. I've always thought this was a weird claim, put this simply. Consumer electronics and computers have been deflationary for ever: You can always get a better TV, phone, or computer for less money if you are willing to wait for a year. Yet people can't stop buying them. Because they want them enough. Deflation should only hurt businesse…

The real issue in a deflationary situation loans effectively become more not less expensive vs 0 inflation situations.

Lending always carries the risk of not being paid back, where you can always just keep your own money. So, a 100$ loan needs to return the original 100$ + the risk + some incentive not to use this money for something else.

Thus loans are effectively the absolute value of (inflation or deflation rates) + a constant factor.

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

#84

Post by lawn »

annamargot wrote: post #77

In a world with crypto currencies, would a frugal Dane be wise to put their cash into a cryptocurrency? I realize crypto is still seen as risky, however if it takes hold and overall market volatility stabilizes, how would easy access to borderless liquid digital assets affect the neg interest rate strategy? Edit: remove mention of specific cryptocurrency in an attempt to shift focus to broader strategy.

With Tether you're essentially converting your cash into USD, but with massive risk added on top. Tether is, as stated by themselves, already not backed one-to-one by USD and you cannot actually redeem them, only trade them in exchanges.

What you instead should ask what effect real cryptocurrencies like Bitcoin can have.

I'm personally quite positive to cryptocurrencies, but I don't have a crystal ball. If a single country is about to go under of course it's a good alternative, but of the global economy tanks it's all up in the air.

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

#85

Post by lawn »

maze-le wrote: post #69
sword_smith wrote: post #33

Earlier quoted context omitted.

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,…

Couldn't you use the same argument against inflation as well? That the improved life and economic growth in the 20th and 21th centuries have been driven by technological advances, and not by the inflationary economy?

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

#86

Post by jnordwick »

This is a really bad articles. The short term rates are not driving this. They don't drive long term rates because be short term rates are largely driven by technical considerations (eg the recent fed interventions in the overnight markets because of liquidity issues).

I spoke to someone about this a while ago. These loans are often required by the government to message certain targets, and are meet positive for the banks because of other regulatory issues that may exist. These negative rates home loans wouldn't exist without some regulation various regulation and government incentives.

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

#87

Post by gridlockd »

JamisonM wrote: post #82
gridlockd wrote: post #64

Earlier quoted context omitted.

> 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, tho…

The argument that the central banks couldn't fight inflation by raising rates is sort of undermined by the fact that central banks have raised rates in very recent history and there was no catastrophe, in 2011 the ECB raised rates 1/2% and all the Eurozone got was a stunted recovery. The US Fed had been steadily raising rates since 2016 and has since admitted that it was a mistake and reversed course. The tools to fi…

> The argument that the central banks couldn't fight inflation by raising rates is sort of undermined by the fact that central banks have raised rates in very recent history and there was no catastrophe, in 2011 the ECB raised rates 1/2% and all the Eurozone got was a stunted recovery.

They raised them very briefly for a couple of months. And half a percent? That's basically background noise. In the past, to fight inflation, rates went up as high as fifteen percent.

> The US Fed had been steadily raising rates since 2016 and has since admitted that it was a mistake and reversed course.

They've reversed course in 2018 because the markets were tanking in 2018. The Fed never admitted making any mistakes, as far as I know.

> "Keynesianism totally works!" (paraphrased)

Remember, Keynesianism says you boost the economy short term to get it up to speed, then throttle it when times are good. Keynesianism is about pulling future demand into the present. Except times never get good enough for politicians to put in the throttle.

So you end up with a pile of debt that can't be serviced in any other way than inflation, and we haven't seen the end of that yet.

Do you believe that situation is better for the owning class, who bought up all the assets in exchange for cheap debt, or the serving class, who have to rent those assets, whose wages are losing more and more purchasing power?

> If you can borrow money at negative interest rates and build assets of any future value then you should do it and make citizens' lives better now and in the future.

That's not what's happening. You borrow money so you can own more of the future, and charge citizens for it.

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

#89

Post by JamisonM »

gridlockd wrote: post #87
JamisonM wrote: post #82

Earlier quoted context omitted.

The argument that the central banks couldn't fight inflation by raising rates is sort of undermined by the fact that central banks have raised rates in very recent history and there was no catastrophe, in 2011 the ECB raised rates 1/2% and all the Eurozone got was a stunted recovery. The US Fed had been steadily raising rates since 2016 and has since admitted that it was a mistake and reversed course. The tools to fi…

> The argument that the central banks couldn't fight inflation by raising rates is sort of undermined by the fact that central banks have raised rates in very recent history and there was no catastrophe, in 2011 the ECB raised rates 1/2% and all the Eurozone got was a stunted recovery. They raised them very briefly for a couple of months. And half a percent? That's basically background noise. In the past, to fight in…

Setting economic policy based on fighting 1970's inflation battles instead of accepting the evidence that the US economy is finally near or at full employment by sustaining a low interest rate environment contrary to evidence and experience. Full employment is good for workers and less-good for asset owners.

Governments can borrow money to build infrastructure that make people's lives better, I don't know how you can dispute that this policy option exists or say that it "doesn't work that way" when you know, governments do that stuff all the time. When in doubt, and you have low interest rates, build a sewage treatment plant!

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

#90

Post by alkonaut »

tom_mellior wrote: post #78
alkonaut wrote: post #8

Earlier quoted context omitted.

Prices have been stagnant for some time now, and tighter restrictions on new loans hopefully reduces the number of people that would be under water if prices dropped 15 or 25%. It would have a pretty bad effect on the economy as a whole though. I’d manage, but would stop spending for years.

> I’d manage, but would stop spending for years. If what happened, exactly? If you already "own" a home and are paying back a loan on it, a price drop of other housing units would not affect you in any way unless you felt that you needed to sell right at that moment. Would your payments rise from falling housing prices? Or your income decrease?

If prices dropped so my loan was 100% or 110% of the value, I’d try to get back to a reasonable level (85% say) as quickly as possible. This would require saving more and spending less than I’d otherwise do.

Even if I have no plans on selling, you never know when you might be forced to sell (death, divorce, illness, work, ...).

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