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European Central Bank introduces negative interest rate

Discussion in 'Tilted Philosophy, Politics, and Economics' started by ASU2003, Jun 5, 2014.

  1. ASU2003

    ASU2003 Very Tilted Donor

    Location:
    Where ever I roam
    Is this the ultimate way to punish savers? Or is it a legitimate way to tax wealth that is trying to avoid risk? Is it a good way to get people to spend more money and get it moving around the economy? Do we have the same thing here in the US, because the value of the dollar has been falling every year due to inflation?

    What I don't understand is why this type of personal finance doesn't get talked about more. I'm not sure it will have a good effect in the long run, but I really have no idea what the impact will be. It will impact the banks who will want to lend the money out quicker. Or will it lead to them not having as much on hand and in reserve? Maybe they will give it out to middle class people who have jobs who want to flip houses, then pass the blame to the poor unemployed for busting the bubble...
     
  2. rogue49

    rogue49 Tech Kung Fu Artist Staff Member Donor

    Location:
    Baltimore/DC
    I supposed they are trying to provoke people to spend.
    However, I wonder if the Japanese have ever considered it...they are notorious for saving...perhaps even over-saving.

    But our corporations are guilty of this too...since they are currently sitting on tons of money...scared after the Great Recession to invest.
    Or perhaps, this is not really for citizens of the nations...but corporations.

    To provoke them to spend too. I can only hope...perhaps actually pay more, not just the execs. Do R&D, invent, execute, etc.

    Money is an illusion...the whole reason for its existence is to do something with it to build & support the nation, not horde it.
    Most of the Reserves of the world understand this.
     
  3. Borla

    Borla Moderator Staff Member Donor

    Do you have a link to the story?


    The info I read a week or so ago about this subject inferred that the central bank would be charging other banks negative interest, not end users. Basically, forcing banks to loan money out and stimulate the economy.
     
  4. Baraka_Guru

    Baraka_Guru Möderätor Staff Member Donor

    Location:
    Toronto
    It basically affects the deposit rate for banks, specifically the rate at which banks earn interest with cash deposits to the central bank overnight.

    Instead of banks having a safe place to stash cash and get a little more out of it, the central bank is now essentially charging banks to park their money. In theory, this should encourage the banks to lend more of the money out instead (possibly at more favourable rates), as banks are in the business of making money, not letting it erode in value.

    But as the article linked below indicates, the results can be mixed.

    ECB cuts rates, installs negative deposit rate - MarketWatch
     
    Last edited: Jun 9, 2014
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  5. Aceventura

    Aceventura Slightly Tilted

    Location:
    North Carolina
    First, Baraka's post is mostly correct.

    More interesting - Do you have a bank actually paying you for your money on deposit? In my case if I take interest paid minus fees (on all savings and checking accounts) I have been paying my bank for using my money for many years and it is much worse since the financial crisis. A virtual negative interest rate.

    I closely follow what is happening in the US - and in the US the financial crisis has been a boom for banks. They got bailout billions, fixed their balance sheets, increased market share (they got bigger), they gained a competitive advantage over small local bans and credit unions, reduced risk and make record profits. They can take bank deposits, your money, mine, etc. and rather than loan that money to business owners, start-ups, homeowners they park the money with the Fed or buy Federal debt - creating a risk-free spread with guaranteed profits. It is a great business. Why do we let this happen????? Seems European's have gotten wise to this boondoggle.


    I think I first started posting about the inability of many small business owners to get access to loanable funds about in 2006 or 2007. The small business sector has to be healthy and able to grow in order for strong job growth to occur. In the US we have been ignoring this problem. In addition with a strong small business sector, with strong job growth, wage growth would get stronger. With strong wage growth, there would be strong consumer demand - and so it goes. But it starts with small business getting access to capital to grow, to expand, to bring new ideas and new products to market.
     
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