Backwardation - Negative Interest Rates
Posted by CircuitGuy 9 years, 1 month ago to Economics
Excerpt:
"Thus in a weak economic environment like this, with low inflation, banks and other financial institutions that want certainty of payment in the future are willing to pay interest to get their money back later.
Part of the problem here is that the fiat currencies of the world exist only to be units of account, and not stores of value. Thus in this unusual environment, they behave like any other commodity, where the prices for futures are often higher than the current spot price, which is known as backwardation."
My comments:
I recall reading 20 years ago about this in happening Japan because their banking system wasn't fully capitalist but had cronyism fueled by vestiges of ancient Japanese values. I remember wrongly thinking that could never happen in the US and Europe.
I would like to see a return to stable 3% inflation, a balanced budget, and positive real rates of interest with a normal yield curve. For the past few years I've started the year thinking we would be heading back to that by the end of the year, but we stay in this bizarre zone of tepid expansion and loose monetary policy year after year.
"Thus in a weak economic environment like this, with low inflation, banks and other financial institutions that want certainty of payment in the future are willing to pay interest to get their money back later.
Part of the problem here is that the fiat currencies of the world exist only to be units of account, and not stores of value. Thus in this unusual environment, they behave like any other commodity, where the prices for futures are often higher than the current spot price, which is known as backwardation."
My comments:
I recall reading 20 years ago about this in happening Japan because their banking system wasn't fully capitalist but had cronyism fueled by vestiges of ancient Japanese values. I remember wrongly thinking that could never happen in the US and Europe.
I would like to see a return to stable 3% inflation, a balanced budget, and positive real rates of interest with a normal yield curve. For the past few years I've started the year thinking we would be heading back to that by the end of the year, but we stay in this bizarre zone of tepid expansion and loose monetary policy year after year.
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So central banks can lower rates during recessions to "prime the pump". It also makes wages less sticky.
I know these reasons don't apply to those opposed to a central bank.
"inflation is theft."
Only for money stuffed in a mattress. Money isn't intended as a store of value. It has no intrinsic value. Its value is in its wide acceptance as a medium of exchange.