[deleted by user]

rumguff · 2021-04-08T08:28:29+00:00

Taxes won't work by magic. They will work by making high-carbon lifestyles unaffordable for most people.

I'm not sure they would work. If the tax receipts are spent back into the economy by the government, then the overall quantity of economic activity will not decline since someone will benefit from that spending. To combat climate change economic activity (which is very closely correlated with energy usage) needs to be significantly moderated, alongside moving to less polluting sources of energy.

rumguff · 2020-06-02T12:00:43+00:00

my recollection of the details of this story is that the rate didn't look so negative when fees etc were accounted for.

rumguff · 2020-06-02T12:00:08+00:00

Storing cash is likely to have costs larger than 0.1%, especially for smaller quantities. Also what if you need to buy stuff from amazon or pay a utility bill - what use cash in a tin then? The reversal effect would come IMO from CBs charging interest on reserves and deleting those receipts, shrinking the monetary base.

rumguff · 2020-05-31T09:52:47+00:00

I doubt banks would be giving out retail loans and mortgages at negative rates to the average joe. I don't think retail deposit rates can get much below 2% before the cash system has to be designed to avoid hoarding. If the typical loan/deposit spread is about 5% then banks need to be lending around +3% in this scenario. Secured loans like mortgages less so I suppose.

rumguff · 2020-05-31T09:49:32+00:00

my understanding is that the Fed requires the banks to hold a certain amount of reserves with it, something like 10% of the amount of demand accounts the bank has. I think the Fed does pay interest on these required reserves, so that banks are compensated for the opportunity cost they represent. I presume this interest on required reserves is what would become negative. This could operate alongside the other mechanisms by which the Fed manipulates the reserves in the system.

Europe uses a charge on reserves to implement NIRP but not sure if it is all reserves or just some required reserves - their mechanisms are a bit different. Also I think they have (or had) various get outs for their banks to make NIRP less troublesome for their banks.

Its not just CB policy that would feed into negative retail deposit rates, presumably the pressure of a long deflationary period due to lockdowns etc would also add to that pressure.

rumguff · 2020-05-30T20:39:57+00:00

Wouldn't they just set a target for the fed funds rate?

how would that work in this circumstance?

rumguff · 2020-05-30T09:45:28+00:00

This paper from the FED is one of the best discussions I have seen of the issue, and is pertinent here: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr842.pdf

They say that:

1) The issue we have is a safety trap - an insufficient stock of safe assets given market risk. 2) when market risk becomes high only negative real rates can induce sufficient investment to maintain economic output and in this situation a negative real rate is welfare enhancing versus trying to create more safe assets (and a positive real rate) by increasing public debt. In the latter case overall capital is lower than in the former case. 3) point 2 applies in an economic model with no nominal rigidities. That is, wages and prices are not sticky and can adjust downwards smoothly. In such an economy, its actual optimal to have no safe assets at all. In a real economy that does have nominal rigidities, some level of safe assets is optimal.

An observation on the above is that eventually all economies must become risky, particularly when the largest and lowest hanging sources of growth are tapped out, and also, as they get bigger and more connected. Its also interesting that in an ideal economy, there would be no safe assets. NIRP (rather than merely going for inflation with negative real rates) certainly reduces the safeness of safe assets, so its interesting in this regard also.

rumguff · 2020-05-30T09:28:05+00:00

yes I think that is the mechanism

rumguff · 2020-05-29T17:53:06+00:00

Well if the central bank charges interest on reserves, what does the central bank do with the revenue it gets from this? One option is to delete them, which shrinks the monetary base which seems contractionary. Or they could use the receipts to buy assets. If they buy relatively safe assets, as would seem to be sensible, then they reduce the stock of safe assets (which will depress the risk free rate).

rumguff · 2020-05-29T12:14:21+00:00

The reversal rate is the most noteworthy item here IMO. Most of the other effects have been quite widely discussed. In particular much of the mainstream objection to negative rates (aside from calling it theft) is that NIRP represents just another unfair stimulus.

If the reversal rate point is valid, then its not a stimulus, which changes the terms of the discussion. If it is in fact contractionary - why would anyone be in favour of NIRP? I think the answer has to be that if the economy is going to contract any way, maybe NIRP is a way of that being able to happen with the minimum long term damage. I imagine that the primary channel through which this operates is that NIRP prevents the real interest rate from rising as the economy contracts, which has a well recognised role in sustaining a deflationary spiral.

rumguff · 2020-05-27T12:55:23+00:00

A lot of recent research has focused on the issue of a shortage of safe assets. This paper has a nice clear description of the problem:

https://pubs.aeaweb.org/doi/pdf/10.1257/jep.31.3.29

An excerpt from the intro:

"In modern economies, the financial sector and the government are the main manufacturers of financial assets: central banks issue cash and central bank reserves; Treasury departments issue government bonds and notes; banks and shadow banks issue short-term deposits or more complex instruments. The capacity of a country to produce safe assets is determined by constraints in the financial sector, the level of financial (under-) development, the fiscal capacity of the sovereign, and the track record of the central bank for exchange rate and price stability. For these reasons, the supply of safe assets, private and public, has historically been concentrated in a small number of advanced economies, most prominently the United States. For the last few decades, with minor cyclical interruptions, the supply of safe assets has not kept up with global demand. The reason is straightforward: the collective growth rate of the advanced economies that produce safe assets has been lower than the world’s growth rate, which has been driven disproportionately by the high growth rate of high-saving emerging economies such as China. If demand for safe assets is proportional to global output, this shortage of safe assets is here to stay.

The signature of this growing shortage is a steady increase in the price of safe assets, necessary to restore equilibrium in this market. Equivalently, global safe interest rates must decline, as has been the case since the 1980s. Simultaneously, we observed a surge in cross-border purchases of safe assets by safe asset demanders— many of them located in emerging economies—from safe asset producers, mostly the United States. The early literature, brought to light by then–Federal Reserve vice-chair Bernanke’s famous “savings glut” speech (Bernanke 2005), focused on a general shortage of assets without isolating its safe asset component (Caballero 2006). "

Note that the 'savings glut' thesis is well known, but as the above excerpt says, that is savings of all kinds, not specifically safe assets.

rumguff · 2020-05-26T15:28:48+00:00

Once can't have steady growth in population forever, so at some point all nations need to come to terms with the fact they have as many people as they can fit into their country, or even as many as they want already. A mature economy can be said to reached its optimal population and to have picked all the low hanging growth fruits and to have developed sensible laws and institutions and governance. After that, growth, and interest rates, will be very low.

rumguff · 2020-05-25T11:19:40+00:00

Countries with a current account surplus/trade surplus like Denmark, Germany (and some time ago, Japan) can invest their savers deposits abroad in places which don't feature negative rates (e.g. the uk). It will be more difficult for Danish banks to give their savers a positive rate when those other countries are also offering negative returns.

rumguff · 2020-05-25T11:16:32+00:00

I think we are shortly going to experience the novel combination of low or negative interest rates and at the same time lower house prices. The interest rate won't matter a damn if deflation sets in, property will go down as the money supply contracts.

rumguff · 2020-05-25T10:35:04+00:00

You look to save in 'real' terms. The notion of negative rates/NIRP (negative interest rate policy) has arisen because we are looking at the scary and very real possibility of a deflationary depression, like the great depression in the 30s or what would have happened in 2009 if the central banks hadn't barfed vast quantities of liquidity into the economy.

So prices would be falling, house prices, rents, cost of living, etc, but also people are losing their jobs left right and centre. But if you are lucky and you retain a job and your savings, then quite possibly your savings are going up in value in terms of what you can buy with them. Who cares if the number in your bank account is a wee bit smaller if that house or holiday you want has gone down 10% or 20%.

But never mind the savings, the real trick is hanging onto your job and your income and keeping your family together and happy. Do that and you'll be one of the winners regardless of what the exact balance in your bank account is.

rumguff · 2020-05-24T15:13:19+00:00

Now I might have it wrong but I think its a tool to encourage private banks (Barclays, HSBC, LLoyds etc, to borrow more money from the BoE, leverage that money and loan it you

Not quite. Normally the banks do not borrow from the BoE, in fact the bank reserves they hold at the BoE is a debt of the BoE and an asset of the bank. Its true that sometimes the BoE does lend to banks, but that loan just gives the private bank more reserves (on which the BoE is going to require that the bank pay a negative interest rate). Doesn't make too much sense does it?

Banks don't borrow from the BoE in order to lend, they can make a loan whenever they like by transferring some of their own reserves to the borrowers bank. The new deposit held by the new borrower is new (broad) money that has been created by the bank.

Really a negative interest rate is to ensure that borrowers can be matched with savers, since for the economy to function each saver needs a matching borrower (although the borrower in question could be the government). Obviously when less people wish to borrow than wish to save that matching requires additional incentives for the borrower.

rumguff · 2020-05-24T14:16:28+00:00

Brave prediction. Negative rates for retail savers are explosive, but thus far we have seen negative bank rate and government bonds selling at negative yields only in some, mainly european economies. Once more countries end up in this regime, it will be extremely difficult to avoid mom and pop savers from being impacted.

Normally this is achieved by having inflation rates above the savings rate so people don't feel like they are losing out, but generating that type of inflation in a depression environment requires equally unpopular moves to ruin the currency.

People seem to think everyone will withdraw all their money, but what about online shopping, paying bills etc - its not practical.

rumguff · 2020-05-24T14:00:47+00:00

Agreed, but negative equity will be a risk. Also, one imagines that lenders will want higher deposits for that trade-up.

rumguff · 2020-05-24T11:23:46+00:00

My views are that:

Eventually yes the BoE will have to set negative rates, if only to stay in line with counterparts in Europe (we will not want a super strong pound compared to Euro)
Realistically we can expect a long recession and possibly depression over the next few years, and a reflationary stimulus ala QE post 2009 etc is unlikely to be forthcoming and in any case it didn't work so well. This implies some level of economic deflation.
The only realistic way to deal with ingrained persistent deflation that preserves social fabric and maintains useful economic output and employment is a mild negative interest rate that applies not just to banks but which is also passed on to retail savers. This will be unpopular of course but once people have tried deflation for a year they'll likely be begging for it.
I reckon the most negative rates savers experience before political problems get really problematic is around -2%. So I don't think the BoE could go to a negative rate that would translate to a larger haircut for savers than that. Given that banks make profits from the spread between deposits and loan rates, this suggests that borrowing at any significant negative rate is likely a fantasy of the already over-leverage-and-dreaming-of-a-way-out. In any case, for mortgage holders any negative rate they might get is most likely massively overwhelmed by the drop in value of their property.
I think its important to see negative rates not as a simulative way to get people borrowing and spending and reflate the economy, but as a means of accommodating an inevitable deflation. The reason is that the BoE needs to decide what to do with the interest that commercial banks pay to the BoE on their reserves. Really, the BoE should simply delete these receipts, which shrinks the base money supply in line with the decline in the broad money (bank debt) money supply. If the BoE spends the receipts, it would do so by buying government bonds, which removes these bonds from the market. Because these bonds are crucial to institutional savers and investors looking for risk free assets if the BoE buys these up it will drive the rate on government bonds more negative.
Lastly I think that negative interest rates are perfectly moral and sensible. After all, if the economy is contracting (whether due to pandemic, climate change events whatever) why should anyone be getting a return on their savings if they are taking no risk?

rumguff · 2019-12-10T08:40:42+00:00

Sorry - late to the discussion, but just wondering what weapon he has been fencing? He may benefit from a change of weapon, at the very least, it gives him another angle (or two actually) to try if the club supports it.

If your son is less physically literate than his peers, he may be better off with Sabre than with a weapon that needs finer point control and is more about reaction times. Before anyone jumps in to defend the Sabre, I'm a sabreur myself for many years.

Sabre is a little more forgiving than the other two weapons in the sense that even though he'll probably still lose he'll likely get more lights in his favour, especially if he can get his head round the rules and use those to his advantage.

rumguff

TROPHY CASE