Negative Interest Rates

[RISP]

Quote:

Originally Posted by Theo Germany is running budget surpluses. So in addition to asking why their bonds are selling at negative interest rates, we should be asking why they are issuing bonds at all.

It's simply a rollover of older, expiring bonds. The total national debt is declining, both in relation to GDP and in absolute terms: https://www.smava.de/eurozone-schulden-uhr

And yes, there is talk about taking on more new debt and using the revenue for investments in infrastructure or education (not tax cuts, that's not how we roll ). But the government's hands are somewhat tied by the 'debt-brake' implemented in 2009: https://en.wikipedia.org/wiki/Debt_brake_(Germany)

[NW-Bound]

If Germany's government either cannot or does not need to borrow money, who can blame them for not paying any interest?

The question is then, why businesses and people have no other places to put their money to use? Is it really that economic condition can be so bad, such that people do not want to invest in anything?

It makes me wonder if this is what we are coming to in the developed world. All the easy investments with good returns are gone. All that is left is either fluff, or too hard and has little return. Yes, we can use more miracle cancer cures, but those are difficult and very costly to get. How many more smartphones/TVs/laptops can we use? Bigger homes?

I don't know what it is, but I do not like it. A decade ago easily, I read of Japan's problem with stimulating its economy. They had a lot of money, but nowhere to put it to good use.

[RobbieB]

You have to be creative and give the people what they want before they want it.

Like facebook which evolved from a college dating site.

[Badger]

Quote:

Originally Posted by cyber888 US is losing in the trade war and tariffs are paid by US consumers, not China. China is going to tap other markets and only the US farmers are losing out. The media gets it - the US government is not getting it.

+1 So many US citizens are not getting it either.


Cheers!

[almost there]

U.S. tariffs are among the lowest in the world – and in the nation’s history.... How did we get here?

[NW-Bound]

Quote:

Originally Posted by RobbieB You have to be creative and give the people what they want before they want it. Like facebook which evolved from a college dating site.

The US has the record of having the most creative entrepreneurs, as evidenced by all the inventions and innovations that started here first.

A lot of wealth is created. It however adds to the wealth and wage disparity that people often lament about.

Can anyone find something worthwhile for Joe and Jane Doe to do to make a decent living?

Oops, perhaps this post should be in the other thread about the decline of rural towns.

[davidfin]

Do you think if I paid my part of the national debt today, I could get a lifetime pass on future federal taxes?

[Theo]

Quote:

Originally Posted by davidfin Do you think if I paid my part of the national debt today, I could get a lifetime pass on future federal taxes?

The debt will get paid regardless of whether you pay your taxes or not.

[jazz4cash]

I would say the debt will be rolled over regardless of whether you pay your taxes or not.

[2177V]

Quote:

Originally Posted by jazz4cash I would say the debt will be rolled over regardless of whether you pay your taxes or not.

I agree the debt will be rolled over. However, there is an impact if you do not pay any principle. For example: If a home borrower has a mortgage that pays zero principle but an interest of 3%, the remaining balance goes up. If that home borrower can sell bonds to cover the 3% interest rates, then the principle balance of the original loan does not go up ....but now there is an additional principle from the bond that pays for the interest. Nothing is free and rolling over a debt is one of them.

[GrayHare]

The federal gov't could sell $1000 lottery tickets, the prize being no income taxes for life. It would be a way to get high-income people to play a lottery.

[2177V]

Quote:

Originally Posted by GrayHare The federal gov't could sell $1000 lottery tickets, the prize being no income taxes for life. It would be a way to get high-income people to play a lottery.

Great idea. Here is another one. Give the 1% or CEO who took the tax reduction and have the company buy their own stock. When the company back back stock, the stock prices tends to rise so the CEO can cash out their stock options. Change the tax law to tax them retroactively.....or give them an option to donate money to the federal government to pay down the government national debt. Any ideas to get the rich to pay more taxes should be on the table.

[Out of Steam]

Quote:

Originally Posted by jazz4cash I could never understand how weaker economies in Europe pay less interest on bonds than US.

Perhaps people are concluding the opposite on relative economic strength when betting their own money, thinking that the lower interest rate buys them a currency with appreciation potential relative to the US Dollar.

[audreyh1]

Quote:

Originally Posted by jazz4cash I could never understand how weaker economies in Europe pay less interest on bonds than US.

Simple - a growing economy usually commands higher interest rates. If an economy falters, interest rates usually drop.

[2177V]

Quote:

Originally Posted by audreyh1 Simple - a growing economy usually commands higher interest rates. If an economy falters, interest rates usually drop.

Here is a good article on negative interest rates in Germany:

https://www.cnn.com/2019/07/29/busin...tes/index.html

Bottomline: Pick your poison: Recession or Negative interest rates.

It appears that Germany decided on the latter. Ironically, the recession may happen anyway. This is the reason that I believe the USA will pick the former and stop at 0.5% to zero.

[NW-Bound]

Quote:

Originally Posted by vchan2177 Here is a good article on negative interest rates in Germany: https://www.cnn.com/2019/07/29/busin...tes/index.html Bottomline: Pick your poison: Recession or Negative interest rates. It appears that Germany decided on the latter. Ironically, the recession may happen anyway. This is the reason that I believe the USA will pick the former and stop at 0.5% to zero.

Well, what if you still have recession despite negative interest rates? Two poisons will kill you for sure.

[jazz4cash]

Quote:

Originally Posted by audreyh1 Simple - a growing economy usually commands higher interest rates. If an economy falters, interest rates usually drop.

So which has more risk, the growing economy or the the one that is faltering?

[2177V]

Quote:

Originally Posted by NW-Bound Well, what if you still have recession despite negative interest rates? Two poisons will kill you for sure.

Good quote. Deutsche Bank is Germany's Lehman's Brothers or too big to fail. It will be interesting if Germany will bail out Deutsche Bank or let it go bankrupt which may trigger panic. In any case, I am hoping for a mild short recession rather than a severe long one where a lot of people loses their jobs. IMO the root cause is debt. If Germany or the USA had less debt, you can spend your way out to stimulate the economy. Germany is now thinking about going deeper into debt for a last stand stimulus program to avoid the recession. This is like taking another poison if it does not work.

[NW-Bound]

A big factor of Germany economy stalling is the worldwide decline in auto sales. Germany exports 80% of the cars it makes. And sales are slowing down from European countries to India and China.

And why are auto sales down? Is it because the economy of the other countries is slowing down too? Things look gloomier all the time.

[audreyh1]

Quote:

Originally Posted by jazz4cash So which has more risk, the growing economy or the the one that is faltering?

The faltering one, according to conventional measures, so more investors pile into government bonds which lowers interest rates.