A substantial article about the probabilities of negative interest rates.
https://apnews.com/f7eee4d172864885b246da733803ee6e
https://apnews.com/f7eee4d172864885b246da733803ee6e
Negative Interest Rates
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Dtail
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That's what the article explains.
Okay just read it. I don't know, it just seems a little strange still, but perhaps due to the USA not being at these levels (yet).
It's been a long time, now, but a hard look at what happened from 2007, to 2008, will go a long way to explain the potential for the possibilities for a repeat. Do you really remember what happened with the banks?
In 1980, the National debt was 1 Trillion Dollars... In 1990 5 Trillion, in 2008 10 Trillion dollars and today 23 trillion. Your individual taxpayer part of the national debt is $183,000.
https://www.cbo.gov/publication/55151
This isn't easy, but if you're looking beyond 10 years, it would be good to understand the trend, and what the negative interest rates portend.
More on Investopedia:
https://www.investopedia.com/terms/n/negative-interest-rate.asp
In 1980, the National debt was 1 Trillion Dollars... In 1990 5 Trillion, in 2008 10 Trillion dollars and today 23 trillion. Your individual taxpayer part of the national debt is $183,000.
https://www.cbo.gov/publication/55151
This isn't easy, but if you're looking beyond 10 years, it would be good to understand the trend, and what the negative interest rates portend.
More on Investopedia:
https://www.investopedia.com/terms/n/negative-interest-rate.asp
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TheRunningMan
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AnonEMouse
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And inevitably it leads to a negative interest rate mortgage:
https://www.theguardian.com/money/2...-worlds-first-negative-interest-rate-mortgage
On the surface it seems implausibly good - I'd sign up for a $1 billion mortgage and live off the -0.6% interest payment. Unfortunately the bank always gets its due - fees would mean you end up paying something, so you don't actually end up with a net positive. Pity, because it would've solved the retirement equation for everyone at once.
https://www.theguardian.com/money/2...-worlds-first-negative-interest-rate-mortgage
On the surface it seems implausibly good - I'd sign up for a $1 billion mortgage and live off the -0.6% interest payment. Unfortunately the bank always gets its due - fees would mean you end up paying something, so you don't actually end up with a net positive. Pity, because it would've solved the retirement equation for everyone at once.
Germany negative interest...
https://apnews.com/f7eee4d172864885b246da733803ee6e
Interesting stuff ... maybe worth understanding as we go forward.
This could be serious.
Who's next?
https://apnews.com/f7eee4d172864885b246da733803ee6e
Interesting stuff ... maybe worth understanding as we go forward.
This could be serious.
Who's next?
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njhowie
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And inevitably it leads to a negative interest rate mortgage:
https://www.theguardian.com/money/2...-worlds-first-negative-interest-rate-mortgage
On the surface it seems implausibly good - I'd sign up for a $1 billion mortgage and live off the -0.6% interest payment. Unfortunately the bank always gets its due - fees would mean you end up paying something, so you don't actually end up with a net positive. Pity, because it would've solved the retirement equation for everyone at once.
It doesn't work like that. And what is securing your $1 billion mortgage? A $1 billion mansion?
Your mortgage is still amortized. Just at the end, instead of having paid more than the amount of money you borrowed, you'd pay a total somewhat less. But you still have to make those monthly mortgage payments for the life of the mortgage.
Now, what this leads to is overpriced real estate and a higher property tax bill. Should rates ever go back up, the housing market would fall apart and you'd be stuck with your $1 billion mansion that might only fetch $600 million.
SnowballCamper
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This is one of those things that doesn't make sense, like offering home loans without verifying income. That happened because there was too much demand for "safe" mortgages to buy.
I suspect a similar thing is happening here. There is just too much money looking for a safe place to park. Maybe this is how we can pay down the national debt? Wouldn't that be nice!
I suspect a similar thing is happening here. There is just too much money looking for a safe place to park. Maybe this is how we can pay down the national debt? Wouldn't that be nice!
John Galt III
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As usual there is an elephant in the room no one is mentioning, which is the question "Why on earth wouldn't someone simply hold cash for 10 years and have 100% of his cash in 10 years, as opposed to buying a 10 year negative interest bond and having only 90% of his cash 10 years later?".
Not as easy as it sounds
Perhaps there are some logistics at work. Would your currency still be accepted if it got moldy or brittle or eaten by termites over many years? From the interwebs:
What 122.1 Trillion Dollars Looks Like | Sneakhype
Perhaps there are some logistics at work. Would your currency still be accepted if it got moldy or brittle or eaten by termites over many years? From the interwebs:
What 122.1 Trillion Dollars Looks Like | Sneakhype
Sojourner
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Hahahah. Cool cartoon graphics gave a nice visual sense for what various amounts of cash look like. And I learned something else new: "hundo" is apparently a slang term for a hundred dollar bill. Don't think I'll be using that one, personally.
Same as before. The lien holder gets your home.
Have you got change for a quadrillion-dollar bill?
I still call hundred dollar bills either "Benjamins" or "C-notes". Also, I will continue to refer to thousands as "large", in homage to The Sopranos.
However, if we were to encounter Weimar Republic hyperinflation, where the currency was denominated in trillions, we might have to recalibrate our slang again.
Hahahah. Cool cartoon graphics gave a nice visual sense for what various amounts of cash look like. And I learned something else new: "hundo" is apparently a slang term for a hundred dollar bill. Don't think I'll be using that one, personally.
I still call hundred dollar bills either "Benjamins" or "C-notes". Also, I will continue to refer to thousands as "large", in homage to The Sopranos.
However, if we were to encounter Weimar Republic hyperinflation, where the currency was denominated in trillions, we might have to recalibrate our slang again.
Negative interest rates "doesn't compute" for a lot of people. It seems to break their paradigm or world view ("hoop" for those who read Black Elk Speaks in college philosophy class). They can't fathom how a world would work in which the value of $ NOW is greater than the value of a future $. (its called inflation/high inflation/hyperinflation).
Big names in finance/investment call it "insane" (Kyle Bass) or "totally nuts".
But. Rewind 10ish years ago and the Fed/US Gov response to the financial crisis seemed equally unfathomable: The Fed bought trillions (with a T) of USTs monetizing the debt. The US Gov could issue all the debt it wanted, the Fed would print the money into existence and buy those bonds. The very concept of monetizing the debt sounded like we were on the path to Banana Republic or Zimbabwe style inflation.
Yet 10 years later here we are happily patting ourselves on our backs at our prudent "buy anything" strategy that has the Dow still hovering around 25-26K, while the Fed is still buying USTs and MBS 10 years after the crisis was supposedly over. Other big Central Banks are also buying stock (BOJ owns something like 70% of all Japanese ETFs). Are these gains economically real? or did all that money printing/inflation just flow into the financial markets instead of the supermarkets?
Maybe the music will keep playing and markets will adapt to negative rates the same way it now expects/demands Central Banks to keep monetizing national debts and propping up markets at the slightest dip. Or maybe it will all just stop... euphemistically called "end badly".
Whoever is buying neg bonds at above par is going to lose money if held to maturity. Which means whoever is buying them now is depending on finding a buyer (greater fool) to take them off their hands later. That buyer will probably be the gov with the money printing equipment. There are other ways to implement MMT...
Place your bets and spin the wheel. Its the only game in town and everyone is required to play.
Big names in finance/investment call it "insane" (Kyle Bass) or "totally nuts".
But. Rewind 10ish years ago and the Fed/US Gov response to the financial crisis seemed equally unfathomable: The Fed bought trillions (with a T) of USTs monetizing the debt. The US Gov could issue all the debt it wanted, the Fed would print the money into existence and buy those bonds. The very concept of monetizing the debt sounded like we were on the path to Banana Republic or Zimbabwe style inflation.
Yet 10 years later here we are happily patting ourselves on our backs at our prudent "buy anything" strategy that has the Dow still hovering around 25-26K, while the Fed is still buying USTs and MBS 10 years after the crisis was supposedly over. Other big Central Banks are also buying stock (BOJ owns something like 70% of all Japanese ETFs). Are these gains economically real? or did all that money printing/inflation just flow into the financial markets instead of the supermarkets?
Maybe the music will keep playing and markets will adapt to negative rates the same way it now expects/demands Central Banks to keep monetizing national debts and propping up markets at the slightest dip. Or maybe it will all just stop... euphemistically called "end badly".
Whoever is buying neg bonds at above par is going to lose money if held to maturity. Which means whoever is buying them now is depending on finding a buyer (greater fool) to take them off their hands later. That buyer will probably be the gov with the money printing equipment. There are other ways to implement MMT...
Place your bets and spin the wheel. Its the only game in town and everyone is required to play.
Just to throw this out there:
1) For those believing/worried that negative interest rates and low inflation might be the new normal and hang around for a long time, EE US Savings Bonds pay double the purchase price at the 20 year point (effective rate: 3.6%). Before the 20 year point, the rate is fixed and it is low (0.1% now), the 20 year point is a one-time catchup. But--$10K max annual purchase per person.
2) For those believing/worried that interest rates lower than inflation will be the new normal, TIPS are still out there. Real rates are very poor now by historic standards, a 30 year TIPS bond is yielding about .42% real. But it will probably be a >very< volatile ride.
3) I-bonds bought today have a real rate of 0.5%, and they can be redeemed without penalty after 5 years. Today's best CDs can beat that unless inflation goes above 2.75%. But, the I-Bond can keep earning interest for 30 years. A big problem is the purchase limit of $10K per person per year (plus an additional $5K of paper I-bonds using a tax refund)
None of these choices will make anyone rich. But, if $10K will buy 10,000 cans of beans this year, it should buy 10,800 cans of beans in 20 years if invested in I-bonds! Well, that's better than negative interest rates + inflation.
1) For those believing/worried that negative interest rates and low inflation might be the new normal and hang around for a long time, EE US Savings Bonds pay double the purchase price at the 20 year point (effective rate: 3.6%). Before the 20 year point, the rate is fixed and it is low (0.1% now), the 20 year point is a one-time catchup. But--$10K max annual purchase per person.
2) For those believing/worried that interest rates lower than inflation will be the new normal, TIPS are still out there. Real rates are very poor now by historic standards, a 30 year TIPS bond is yielding about .42% real. But it will probably be a >very< volatile ride.
3) I-bonds bought today have a real rate of 0.5%, and they can be redeemed without penalty after 5 years. Today's best CDs can beat that unless inflation goes above 2.75%. But, the I-Bond can keep earning interest for 30 years. A big problem is the purchase limit of $10K per person per year (plus an additional $5K of paper I-bonds using a tax refund)
None of these choices will make anyone rich. But, if $10K will buy 10,000 cans of beans this year, it should buy 10,800 cans of beans in 20 years if invested in I-bonds! Well, that's better than negative interest rates + inflation.
NW-Bound
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The title of "Negative Interest Rate" is misleading, if not outright wrong.
The bond has a zero coupon rate, meaning the bond buyer does not receive any interest payment at all for the 30-year duration. And at the end of the 30 years, he will get back less than his original principal.
The bond has a "Negative Yield" if held to maturity.
If the Germany government is successful in selling future bonds that are even more negative, then the current bond would be worth more. The lesser evil will become good!
See above. No interest payment ever in the 30-year life of the bond. And at maturity, you get back less than you give them. Your principal has shrunk.
The bond has a zero coupon rate, meaning the bond buyer does not receive any interest payment at all for the 30-year duration. And at the end of the 30 years, he will get back less than his original principal.
The bond has a "Negative Yield" if held to maturity.
If the Germany government is successful in selling future bonds that are even more negative, then the current bond would be worth more. The lesser evil will become good!
See above. No interest payment ever in the 30-year life of the bond. And at maturity, you get back less than you give them. Your principal has shrunk.
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Dang! I'm late to this. I've scanned many of the posts but the techno working of bonds to me, is something like tying a necktie. I understand it... but I don't quite understand it.
What this seems to be saying is, even with over a decade of people printing money to revivify economies everywhere, the biggest fear by "those in the know" is "deflation."
Back sometime after the 2000 crash when speculation of where it's all going was pervasive, someone said if you want to know where the economy is going watch what bond traders are doing.
Like many things about investing it probably has good insight sometimes, and not at others. But bond traders even more than "technical analysts" really do get paid to see into the future. That's what yields are ultimately about.
Backdraft57
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...ammo
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Ed B
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This thread feels like the opposite of a "Wheeee!" thread. I can only hope it has the opposite effect of a "Wheee! thread.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
So these 3.0-3.5% APR credit union 5 year CD specials that some of us are scarfing up will look pretty good?
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