Negative Interest Rates

[NW-Bound]

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

https://www.cnn.com/2019/07/29/business/deutsche-bank-ecb-negative-rates/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]

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]

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]

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.

 

[2177V]

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.

History has shown shown that the stock market crashes before the recession. Most economists are predicting a recession within 6 to 24 months. Thus a crash may occur 4 to 22 months. 4 months is Jan 2020. Election is 15 months which is why the chances are 50/50 by election day. The American consumers are still spending which is holding up the economy. Something major has to happen to shake up consumer's confidence.

 

[Chuckanut]

Apparently, some mortgages in Europe are now have negative interest rates meaning that the banks are paying people to borrow money to buy their homes. The corona virus has kept the negative rates around longer than anybody expected.

https://www.wsj.com/articles/with-n...e-paid-to-borrow-11616664600?mod=hp_lead_pos7

LISBON—Paula Cristina Santos has a dream mortgage: The bank pays her.
Her interest rate fluctuates, but right now it is around minus 0.25%. So every month, Ms. Santos’s lender, Banco BPI SA, deposits in her account interest on the 320,000-euro mortgage, equivalent to roughly $380,000, she took out in 2008. In March, she received around $45. She is still paying principal on the loan.

Many European borrowers have variable-rate mortgages tied to interest-rate benchmarks. Like most in Portugal, Ms. Santos’s is tied to Euribor, which is based on how much it costs European banks to borrow from each other. She pays a fixed 0.29% on top of the three-month Euribor rate. When she took out the mortgage in 2008, three-month Euribor was close to 5%. It has been falling in recent months and is now near a record low, at minus 0.54%.

 

[2177V]

Apparently, some mortgages in Europe are now have negative interest rates meaning that the banks are paying people to borrow money to buy their homes. The corona virus has kept the negative rates around longer than anybody expected.

https://www.wsj.com/articles/with-n...e-paid-to-borrow-11616664600?mod=hp_lead_pos7

IMO...Very unlikely negative rates are going to happen in the USA for the following reasons:

1. US Fed is committed to avoid negative interest rates.

2. US Fed has an inflation rate target of +2% to help pay the deficit (2% inflation = wages goes up = more tax revenues).

3. US Fed have to adjust the treasury rate market to positive interest in order to acquire investor money to pay for the deficit.

4. European money is coming in which drives up the US stock market. A negative rate may crash the US Stock market since European investors has an exchange rate risk and they may pull out of the US and invest in countries without a negative rate.

In other words, a negative interest rate will create more problems than trying to stimulate the economy. US decided to stimulate the economy with stimulus checks instead. You normally do not do both.

 

[jazz4cash]

This started a long long time ago. See post #8 from 08/19 of this thread. I wonder why would I pay any principle if I had a mortgage with a negative interest rate.