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Old 01-21-2015, 04:33 PM   #21
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I look at it as the next step after the last year where return of capital (convinced you will get your $$ back) was more important than return on capital (increase my $$). Now if you were to pay a negative rate, you would be paying a slice to be convinced you will get the $$ back.

I'm wondering if I was a Russian or Arab or Japan or Chinese, and I had some $$ I wanted to put in a safe place, why would I choose a German bond at 0.04% or a Swiss at -0.04% rather than a US 10 year at <>2% ?
Gotta wonder if the FED will be able to raise rates. They may be able to raise the overnight rate they will pay, but will the market let them impact the 10yr or 30yr rates ? At some point if I was a wealthy guy looking to buy some bonds, I would come to the US bonds where I could get some small return. Why would I choose a rate that was negative? Will US 10 year be at 0.05% by the end of the year?
The reason you choose Swiss is because historically that is what you do. The United States has the most reporting of any country and most foreigners do not want anything to do with our banks or government bonds, that I have seen if you are a rich Russian or Arab you probably do not want to end up on 60 Minutes, which will not happen in Switzerland. Germany has tough banking laws and if you think the Euro is going to implode you would not invest there, so by default Swiss is the safest and why the interest rate is negative, if all interest rates were the same no rich Arab or Russian would invest in USA.
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Old 01-21-2015, 05:07 PM   #22
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This is what I found on a Swiss news site (http://www.tdg.ch/economie/argentfin...ory/15520677):

The negative rate applies to money deposited by banks to the Swiss National Bank. The head of the national bank is quoted as saying that he does not expect banks to pass on that increased cost to savers and that he does not expect to see negative rates on Swiss savings accounts.

The stated goal is for the banks to stop hoarding money and invest it instead in the economy.
The inflation rate in the EU block has fallen down to -0.2% in Dec 2014. For comparison, its lowest inflation rate was -0.6% in 2009 at the height of the global recession. So, even though they charge member banks for depositing money, the purchasing power is still not lost because of deflation.

Now, compare the above to the US where the Fed fund rate is about 0.13%, but the US inflation is 0.76% in Dec 2014. Hey, that is worse than the EU, because you lose 0.63% while in the EU you break even.

The Swiss central bank move is just the latest. The EU central bank already made that move in Sep 2014. Sweden made the cut in July 2014, and Denmark in Sep 2014. Fun time!

See: Less Than Zero - QuickTake - Bloomberg.
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Old 01-21-2015, 05:16 PM   #23
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Why take a negative interest rate when you could take currency from the teller to the safe deposit box?
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Old 01-21-2015, 05:23 PM   #24
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... or to your mattress.

Individuals would do that, but a bank would have problem moving its cash reserve in the market place to/fro the hideout.
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Old 01-21-2015, 05:26 PM   #25
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Old 01-21-2015, 06:53 PM   #26
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Now, compare the above to the US where the Fed fund rate is about 0.13%, but the US inflation is 0.76% in Dec 2014. Hey, that is worse than the EU, because you lose 0.63% while in the EU you break even.
Hey, my FDIC insured savings account is paying me a 0.90% interest rate. I'm not having to accept 0.13% anywhere.
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Old 01-21-2015, 07:43 PM   #27
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Of course your 0.90% is still a tiny bit better than the inflation rate, or what your bank gets for its cash sitting at the Fed.

But, but, but your bank is laughing all the way to the bank - wait, they ARE the bank! - because they are still charging double-digit rates for credit cards.

Funny business! I thought Bitcoin was weird, but fiat money business is strange too.
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Old 01-21-2015, 08:28 PM   #28
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Why take a negative interest rate when you could take currency from the teller to the safe deposit box?
I just checked and the Swiss Franc currently has about the largest size currency in circulation 1000 francs, while the Euro only comes to 500 Euro which today is about 499.9 swiss francs. So if you could get ahold of the notes thats what to put in the safe deposit box, The US is a piker having only $100 bills.
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Old 01-21-2015, 08:37 PM   #29
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Of course your 0.90% is still a tiny bit better than the inflation rate, or what your bank gets for its cash sitting at the Fed.

But, but, but your bank is laughing all the way to the bank - wait, they ARE the bank! - because they are still charging double-digit rates for credit cards.

Funny business! I thought Bitcoin was weird, but fiat money business is strange too.
Sure they're making tons of money - on other people! I get a 2% rebate on my credit card charges, so I'm also delighted!
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