Huh, negative interest rates
- Thread starter El_Machinae
- Start date
How do you mean enforce? It only talks about money stored at the central bank...just like they used to add the interest to the stored money in the past, they're now deducting in...
In any case, I'll be off to the bank now to pick up the interest from my mortgage
FriendlyFire
Codex WMDicanious
Well compared with just hording Cash (or coins), Real estate at least gives you rental returns and is
I suppose the Rich could convert there cash to precious metals, gems and what not.
kuiadore !
Mise
isle of lucy
5 years too late tbh.
Rashiminos
Fool Prophet
At least it hasn't proceeded to the "Hey, shut up and give us your money!" stage yet.
The rich, or anyone else, could convert their cash to non-physical investments which are safer and give better returns than either real estate or metals/gems.
Jehoshua
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This seems to be an effect of desperately attempting to implement a keynsian solution to the current financial woes afflicting the economic system (which does not seem to be improving according to indications). Ergo the concept that seemingly is being applied is that if the central bank created greater liquidity in the market, this will somehow cause people to spend more and reboot the economy through the revitalisation of commercial trade. The problem with this proposition is that credit money created by fiat (and unhinged from tangible assets) requires people to borrow from somewhere (creating a flow of cash) for it to be effective, and while one can perpetually print money, one can't print borrowers. So I think that this solution will be a flop, and that it really is just a belated hamster-spinning response on the part of the economic priesthood to the way things are going (that is to say, the economy is not doing well, and the central banks have no control over where things are headed)
Tahuti
Writing Deity
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+1 to you.
The real solution to prevent further financial crisis is to reduce the economy's reliance on debt to a bare minimum. Those who only target public debt only and not private debt are scratching the surface though at least they are getting somewhere.
classical_hero
In whom I trust
Will my magic beans be worth any money?
It's not really Keynesian. As a Keynesian would have the government spend the money directly. The EU is clearly outside the area where monetary policy matters. On the monetary end, there's both a reluctance to borrow, and importantly a reluctance to lend. This could do a little for the reluctance to lend.
It's the wrong tool. And it's too little and too late. But as the EU governments refuse to act responsibly, there's not much else for options.
innonimatu
the resident Cassandra
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The ECB is not carrying out any keynesian policy. States would have to do that. They're doing the opposite.
I just want to see the FN win a national election in Franc, sit back and enjoy the Euro crumble and all those invested into european bonds with it. Get rid at once of of both the disastrous currency union and those european banks 'too big to fail'.
I just want to see the FN win a national election in Franc, sit back and enjoy the Euro crumble and all those invested into european bonds with it. Get rid at once of of both the disastrous currency union and those european banks 'too big to fail'.
Jehoshua
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Its in principle Keynesian. The modus vivendi of Keynesianism is that one should increase economic activity in hard times to boost the economy, and save your pennies in good times. In this case they can't really afford to splurge money and get into more debt so to increase economic activity they are going down the novelty path of negative interests rates. Might be a novel prescription, but its theoretically Keynesian to its core in the principles that inform it.
If they were capable of arithmetic on a grade school level, then they would know that they can afford as much stimulus spending as it takes. So splurge. The only people who think that they literally can not are those who fundamentally incapable of ever getting admitted to a high school math class.
Yes.
The. Math. Is. That. Basic.
People are not opposed to stimulus spending because of anything about the math. But rather because the math is irrelevant to their thinking. They flat out could not give less of a @&^$ about the math.
Now, as to whether that is Keynesian, not really in the old school sense. But the new Keynesians are much more monetary policy oriented than the old. Keynes himself would have said just spend the money. And I tend to think that is right. So it's 'Keynesian' to the extent that it's not as utterly immoral and irresponsible as doing nothing at all is. But neither is it as moral and responsible as Keynes would tell you to be.
Jehoshua
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Of course they could spend cash in a direct action plan. I say they cannot afford to do so not in the financial sense, but in the political and macro-economic (perpetually increasing sovereign debt is untenable in the long run) one as no doubt you gathered by your reference to popular opposition.
You aren't doing the math. You have taken the political position that for political reasons you refuse to do the math.
Because, if you dropped your political opposition to doing the math, then you would have absolute certain knowledge between your ears that I am arguing for a very small amount of debt compared to what you are arguing for. You are arguing for having several times higher total debt than I am arguing for.
Do the math. The math is grade school. Stop refusing to do the math because your politics doesn't like the outcome.
Jehoshua
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Hoho, I think someones got a little mantra in place of an argument in favour or your position there 
. You do realise that you can rant however you like about "political opposition" to so and so view and "not doing the maths" , but it doesn't actually make your assertions regarding what I said true.
Indeed on the contrary, what I said (in the previous post) is that it is politically untenable at present for European governments to do as you suggest (for various reasons, including popular perception and so forth) AND that perpetual Keynesian spending (seeing as sovereign debt is already quite large) in a context where the reserve banks have little to no control over the economic trajectory as it stands, in the political dimension of an economic slowdown, would be very problematic. This being since debt-spending as stimulus would have to be sustained over time to have substantial effect, and has little impact on existing private debt (most people are concerned about their own circumstances afterall). What I said was merely a commentary on your propositions political feasibility (which is why I noted they could do it, but it would be politically untenable).
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Anyways as to an economic assessment of your proposition (since you clearly want one) I would hazard a guess it would result in something like what's occurring in America. Basically what we have seen there is that federal debt spending (intended to jump-start the financial and household sectors) has, while keeping the can rolling away from depression (kudo's there) due to the stimulus it provided, done squat to actually improve household and financial credit (thus why the situation on the ground feels so bad for so many people). The growth in the US economy over the last few years has been almost entirely due to the growth in government and corporate credit through the spending program instituted since the financial crisis, household credit in comparison has remained flat, and financial credit over the last five months actually has been diminishing. Ergo, the limiting factor I think you are not taking into account in your splurge suggestion is private debt, which presents an obstacle to the flow of credit. People in debt (particularly students [8% of US household debt is student debt], as recent reports on home-ownership in the US by the US reserve bank indicate ) are far less likely to be able to take on a credit card, car and mortgage debt in the future no matter how much money you put into the economy (since you can't print borrowers, as I noted earlier) presenting a limitation on the flow of credit. Without addressing this limiting factor to the flow of finances, you can't really expect any meaningful recovery on the ground by pumping money in the form of sovereign debt into the system, since no self-interested individual will borrow credit and go further into debt than he already is. Even doing what Australia, which is in a much better situation than the US or Europe, did (the government in the financial crisis gave people a cheque to spend) would just prove to be a stopgap measure in this context.
. You do realise that you can rant however you like about "political opposition" to so and so view and "not doing the maths" , but it doesn't actually make your assertions regarding what I said true.Indeed on the contrary, what I said (in the previous post) is that it is politically untenable at present for European governments to do as you suggest (for various reasons, including popular perception and so forth) AND that perpetual Keynesian spending (seeing as sovereign debt is already quite large) in a context where the reserve banks have little to no control over the economic trajectory as it stands, in the political dimension of an economic slowdown, would be very problematic. This being since debt-spending as stimulus would have to be sustained over time to have substantial effect, and has little impact on existing private debt (most people are concerned about their own circumstances afterall). What I said was merely a commentary on your propositions political feasibility (which is why I noted they could do it, but it would be politically untenable).
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Anyways as to an economic assessment of your proposition (since you clearly want one) I would hazard a guess it would result in something like what's occurring in America. Basically what we have seen there is that federal debt spending (intended to jump-start the financial and household sectors) has, while keeping the can rolling away from depression (kudo's there) due to the stimulus it provided, done squat to actually improve household and financial credit (thus why the situation on the ground feels so bad for so many people). The growth in the US economy over the last few years has been almost entirely due to the growth in government and corporate credit through the spending program instituted since the financial crisis, household credit in comparison has remained flat, and financial credit over the last five months actually has been diminishing. Ergo, the limiting factor I think you are not taking into account in your splurge suggestion is private debt, which presents an obstacle to the flow of credit. People in debt (particularly students [8% of US household debt is student debt], as recent reports on home-ownership in the US by the US reserve bank indicate ) are far less likely to be able to take on a credit card, car and mortgage debt in the future no matter how much money you put into the economy (since you can't print borrowers, as I noted earlier) presenting a limitation on the flow of credit. Without addressing this limiting factor to the flow of finances, you can't really expect any meaningful recovery on the ground by pumping money in the form of sovereign debt into the system, since no self-interested individual will borrow credit and go further into debt than he already is. Even doing what Australia, which is in a much better situation than the US or Europe, did (the government in the financial crisis gave people a cheque to spend) would just prove to be a stopgap measure in this context.
Tahuti
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You're nitpicking. Using monetary policy to stimulate the economy is more monetarist than Keynesian, though it doesn't detract from Jehoshua's general points, which is that continually increasing debt to end the crisis will lay the foundations for another one. Debt is the problem. Though it is not just public debt however.
I'm not sure I buy your US household narrative. Household balance sheets look better than they ever have in the US and debt service (debt payment as a per cent of disposable income) is around 10%. That is lower than anytime in the last 35 years. This after being the highest debt service six years ago.
Household balance sheet 4Q 2013:
$94.4 tn assets--23% homes, 10% deposits, 40% other financial assets
$13.8 tn debt--68% mortgages, 9% student loans
I think we will see legislation for older student loans to be refinanced at the current ~3.35% rate.
That said getting a mortgage got infinitely more difficult this year with new mortgage rules.
Corporate balance sheets are the same and there is capacity for capex spending through internal funding (retained earnings plus depreciation) without incurring debt.
That said these central bank experiments do concern me...
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I might be being a dummy, but how can debt service be at 10%? Are my mortgage payments that atypical?
