Denmark sports Negative interest rates. How?
There are two tricks involved. The first is that the Danish krone is pegged against the Euro even while not part of the EU. The second is that real estate prices have skyrocketed.
Can it last? Sure - until the EU crashes and takes Denmark with it...
Can it last? Sure - until the EU crashes and takes Denmark with it...
I have been with B of A for a long time, but they are trying as hard as possible to sneak in fees regardless of any reasonable balance one keeps with them.
I will look around to find another bank or banks soon.
My earliest experience with B of A kept me away from them for 30 years. I opened an account in LA after asking how long the hold would be on a sizeable check from Merrill Lynch that I had in hand. They promised 2 days hold and after i made the deposit they held the funds for 10 days. That was when I withdrew the cash, closed the acount, and walked across the street to Security Pacific. i haven't had any trust in BofA since, and still don't.
I suspect most banks today, and probably all of them tomorrow will be servants of the government. The bank of PVC pipe in my backyard seems a lot safer than with a bank that can restrict access to my funds at any time
My solution so far is to use the banking system as little as possible, assuming that whatever I put into it will be subject to confiscation at any time- depending only on my relative insignificance and obscurity to keep me out of the political spotlight.
I can see why John Galt made just enough money to survive and didnt interact with the system any more than that. Its amazing to me that Ayn Rand could predict what was going to happen so long ago. Smart lady.
Abolish the Federal Reserve and allow individual banks to issue currency. That would re-introduce the competition you correctly observe as being absent from the picture. It would also push us back towards a physical asset-type currency because the banks wouldn't be able to simply issue fiat-based currency.
The only way any of this is going to happen, however, is if the entire system breaks down completely worldwide or some natural disaster takes place that effects a collapse. People certainly wouldn't vote for it to happen.
PVC huh? Never thought of that. If the Clinktons win, stuff may become more valuable than money in a few years into the future.
Hold a séance and let me know.
I think I will change my personal banking to another bank though
Precisely. This was pointed out in another post months ago (search apparently isn't constrained to the Gulch so I couldn't find it).
Why would anyone voluntarily trust the government with their money? Much less pay to get screwed?
That TV show "The Bridge" makes the Danes seems super-laid back compared to the Swedes, but I don't really detect that.
I love Copenhagen and sort of dream of my family cramming into one of those expensive two-bedroom apartments on one of those little islands about two or three blocks in size. I'm amazed at how they're just connected by one car bridge and a couple of bike bridges. I don't know how they make it work, but I think it's awesome. I love how bike-friendly it is, even compared to Madison, which is supposed to be near #1 for the US.
I couldn't stand living there though. The first thing I do when I get back is buy a $0.99 32 oz big gulp. :)
The government arranged this because as soon as interest rates rise significantly above zero, the interest on the now 14-digit national debt will be over $1T/year all by itself. And from there it only spirals up into runaway inflation -- there is no hope of the taxpayers ever paying it back. The government is in a trap it can't get out of without hosing the reputation of whoever is unlucky enough to be in office when the public starts to notice the problem.
Of course creating that new money is more inflation anyway. Just looking at prices locally, I'm sure the government is fudging the Consumer Price Index the same way they're fudging the unemployment number.
Isn't it also for reasons of aggregate demand? Suppose the federal budget were balanced. I think they'd maintain ZIRP. I could be wrong on this. Maybe the balanced budget would allow higher growth, allowing for higher rates. I'm hazy on the interplay between monetary and fiscal policy.
"as soon as interest rates rise significantly above zero, the interest on the now 14-digit national debt will be over $1T/year all by itself. And from there it only spirals up into runaway inflation "
Generally tighter monetary policy reduces inflation. So in my model, current loose policy should result in high inflation, but that hasn't happened.
Straightlinelogic has offered some explanations of this that I only partly understand.
"I'm sure the government is fudging the Consumer Price Index the same way they're fudging the unemployment number."
I try to focus on numbers I believe in and ignore those I think are wrong. I tend to trust GDP deflator, but I know people have their own methods. In my work knowing the exact number of inflation isn't important. Whether inflation is a 1% or 6% doesn't affect my world either. I know it's different for people doing large equipment and basic materials, but that's far from my world.
" The government is in a trap it can't get out of without hosing the reputation of whoever is unlucky enough to be in office when the public starts to notice the problem."
If you mean the fiscal deficit, I hope Gary Johnson takes office and starts to fix it before it turns into an acute crisis. I agree it's politically hard to fix, but it's also incredibly easy to fix apart from the political issues. If they just locked nominal gov't spending at its present level, not a radical suggestion, the problem would disappear. It drives me nuts that we wait until a crisis and cry "hoocudanode!?"
"Generally tighter monetary policy reduces inflation. So in my model, current loose policy should result in high inflation, but that hasn't happened."
Generally, yes. But it also assumes that capital has another place to go for investment purposes, and that is where the model breaks down. Bond returns are actually negative right now for Treasuries. Stock prices are bubbling: rising despite no real growth in corporate earnings or profits. Real Estate is seeing a bubble as well as at least they are a real asset, but they are horribly over-priced in my area (though the county governments don't mind the tax income one bit). That's why many companies are simply sitting on their cash: there is no place to invest it that generates a real return at reasonable risk.
The other problem is that the Fed is still holding much of the money they printed: they didn't release it into the economy. That would have seen inflation happen, and in general inflation is still happening, it's just in some sectors a lot more than others. Look at food prices for a good example of inflationary pressures.
"Whether inflation is a 1% or 6% doesn't affect my world either."
It affects my world (food service) no matter what the number is.
The rates are low cause they think that will boost capitalism but it's back firering on them...they also are held hostage by wall street, by being threatened with a crash...hmm...seems to me that wall street did fine when interest rates were 6% plus.
Negative interest rates harms everyone except the borrower. In this case...the banks...how would you like to get paid to take someone's money...the ultimate liberal fantasy...
$19,000,000,000,000.00 and still a crumbling infrastructure. A woeful job environment.
Basically pissed away. Or spent to control the individual (security) .It couldn't have happened
If rates were higher.
$100,000,000,000.00 annual interest owed for every .5% increase ---- $1trillion when rates are
At 5%
"Crumbling infrastructure" is code for union payouts - not real investment in the economy.
My point was regarding the massive debt we owe.
In my area the Interstate 35 bridge over the Mississippi river in Minneapolis collapsed in few years back.
For example, approximately 250 of the U.S.' most heavily crossed and structurally deficient bridges are on urban interstate highways, the ARTBA reported. Of these, more than 85% were built prior to 1970. Estimates are over 60000 bridges nationwide are structurally deficient.
BTW I would rather see a construction worker get the cash then a moocher who won't work.
"In my area the Interstate 35 bridge over the Mississippi river in Minneapolis collapsed in few years back."
Yeah, heard about that one. Here's a question: who is responsible for bridge maintenance? Hint: it's not the Federal Government! They may provide some of the funds, but it is ultimately left to the States to do inspections and schedule repairs and replacements. If there are really that many bridges which are structurally deficient, you need to get on your local and State representatives to get things addressed. I personally would be surprised if even half of that 60K number are actually found to be deficient, however. I'd be more worried about the recent construction: stuff built back in the 60's and 70's was built to last.
"BTW I would rather see a construction worker get the cash then a moocher who won't work."
While I agree that moneys should be paid only for services rendered, what I object to is the Federal Government setting the wage rates. Our local construction jobs cost only 35% of the Federal ones because they aren't paying Davis-Bacon rates, but if you want to get Federal funding for a job, it has to be done using Davis-Bacon. But let's take a step back for a minute and look at where the money for paying for this stuff is coming from? It's coming from you and I: the taxpayers! That they spend more than 50% more on a job than they need to means that they are wasting a LOT of our tax money which could be staying in our pockets!
I totally agree re: govt. mandating wages in private sector.
Supply and demand should determine with mutual consent of the parties involved.
The minimum wage issue is a prelude to slavery.
who is responsible for bridge maintenance?
Feds control the purse!
The Federal Highway Administration distributes billions of dollars in federal grants each year to state, local and tribal governments to support highway efforts. Responsibility for building and maintaining highways is the charge of state and local governments, but the FHWA provides enormous support in the form of funding. Using monies collected from fuel and motor vehicle excise taxes, FHWA disperses federal highway funds to cities, counties, state agencies.
My comments that you replied to; were focused on the ability to use low rates to in effect bury us in debt. As I have stated numerous times interest rates at historical averages ( last 100 years) on our debt would be 1 trillion dollars annually without paying a dime of principal.
I for a bit of sarcasm I apologize. My intent was not to debate the infrastructure I find it thought provoking to discuss current affairs.
Please don't feel at all like your comments are not appreciated or worthy of discussion and debate. Keep the discussion alive and we all benefit!
The global economy is all a house of cards waiting for the slightest stiff breeze to pass through.
I vaguely understand there's more leverage now, but I don't get why. I don't understand why the same rates we have now appear to have a different effect.
I see borrowing and saving as two sides of the same coin. My accounts at the bank are assets on my books and liabilities on the bank's. My loan is their asset and my liability. My gut feeling is there's just too much leverage. It should be a good thing if people are borrowing to fund good ideas. According to my model, the low rates should be causing people to build businesses that hire people, which causes price and wage increases, which requires central banks to raise rates to maintain a low, predictable rate of inflation. That's not happening, so my model is obviously wrong.
https://en.wikipedia.org/wiki/Gramm–L...
Bottom line, CG, is the entire market is rigged to benefit the banking cartel and the fedgov by stealing from us.
I know of two ways this happens:
1) If you hold cash, it loses value.
2) If you hold other assets and exchange them for cash, it's usually a taxable event, so you end up getting taxed on the inflation.
Are there other ways?
Are you saying if an investor only invested directly, not through mutual funds or ETFs, they could get more alpha-- a higher rate of return and/or less volatility? I'm trying to understand how their mutual fund, broker, bank, insurance provider is stealing from them. Are you saying the fund managers accept higher multiples that you don't think their future earnings justify? It seems like if there were more alpha to be had somewhere else, people would go there.
In reality, the cause was the Community Reinvestment Act, passed by Jimmy Carter. The three congressmen and senators during the 1995 to 2006 era who got political backing to grow the Community Reinvestment Act were Chris Dodd, Barney Frank (as in Dodd-Frank), followed by none other than the community organizer-in-chief, now President Barack Obama, while he was still a senator. President George W. Bush was also much to blame.
A nice summary by someone who formerly was in favor of the Community Reinvestment Act before seeing the light is at:
http://www.businessinsider.com/the-cr...
Mortgaged backed securities are
not derivatives they are typically a pool of mortgages lumped by duration or coupon.
What Are Derivatives? Derivatives are securities with a price tied to an underlying asset and can be classified into forwards, futures, options and swaps. These instruments are useful to businesses seeking to hedge their risks, whether they are a producer or consumer of agricultural products, metals or energy, or a pension fund needing to reduce its exposure to fluctuating interest rates.
Standardized derivatives have detailed terms and specifications for each class and series of contract and are usually traded on an exchange. Other types of derivatives are traded over-the-counter (OTC) and are unregulated. However, their implicit leverage and risk can be dangerous when used for investment or speculation without enough supporting capital.
- See more at: http://www.ncpa.org/pub/the-role-of-d...
I would also add Clinton eliminating Glass Steagle Act, oh and not to forget the ratings agencies giving AAA ratings to junk.
Mortgage-backed securities are a derivative investment, but not in the way that most financial types classify derivative investments. Mortgage-backed securities are a pool of assets that has been securitized. In that sense, they are not derivatives. However, in another sense (the sense that I meant it), mortgage-backed securities are backed by other assets (i.e. mortgages), and therefore are a derivative investment. There are multiple meanings to the word derivative. If the economists truly understood the proper meaning of the word derivative (i.e. the calculus definition), then options and futures investments would be bets on the slope of the price, rather than the prices themselves. A classic example of this type of derivative investing is the VIX.
Also note the following document by
Joseph G. Haubrich, Derivative Mechanics: The CMO (which stands for collateralized mortgage obligation, the worst kind of mortgage-backed security), Economic Commentary, Federal Reserve Bank of Cleveland, Issue Q I, pages 13-19, (1995).
What makes this "stealing" (and your suggestion a good example of what I asked for) is the series of bailouts. I wrote to my Congressman and senators to oppose them. Bankers talked as if their business failing was "the end of everything", imagining that their enterprise to provide capital to worthy projects ceased to exist, worthy projects would cease to exist. In reality someone else would have stepped in to serve those customers if existing institutions collapsed.
Policy makers and financial institutions had gotten themselves in a quagmire IMHO by having money market funds and mortgage securities tacitly backed by the US gov't. If the US gov't is going to guarantee things, it needs to be clear on which things are guaranteed (e.g. MMAs) and which things are not (e.g. MMFs). To me this gray area of being tacitly backed by the US gov't was the problem.
The ethical approach is to remove your support from the looter parasitical system and invest directly in the means of production. Its similar to the strike in AS but not taken as far.
I just don't get how they're doing this. I get what jbrenner said about bailing out risky loans: the money from the bailout comes from people who succeeded and flows to people who made bad deals. I do not get the "looters rig the system" thing. If I take equity as payment, you don't think that's rigged. If an older person who's had success wants to provide angel funding, that's not rigged. But it becomes rigged when a large institution does the same thing?
Maybe I'll never get this. We can "manipulate" a small company right now from our desk just by taking a large position in it.
"Guess who buys these cheap shares?"
Anyone who wants, right. We can do it from our phones. If you're thinking you're a simple investor and just want to hold the shares b/c you think their onto something big, you can do that. If you feel like it's needlessly volatile you could own the shares and write calls covered by them. If they get called away due to this "artificial" volatility, you could write puts every month, and then if you should get assigned, you own the shares again. If you think analysts are creeping around the company to get information before you do (you're probably right about this; they can be tricky in my experience) and it's bad enough you don't want to own the shares, invest in some enterprise whose management team you believe in and that you feel you have a solid handle on.
Maybe I'm wrongly interpreting what you're saying as victim thinking. You've been very patient with me trying to explain, but I still don't get it.
Isn't what we're saying true for everything? I imagine your wealth is in local investments that are way less liquid than stocks. When you acquire them, the seller has no obligation to sell you to. In fact, if you buy RE at the steps in a small county, maybe local investors have an informal agreement not to bid up the price too much and to let the deal go to who's "turn" it is. That doesn't make every RE investor a mark.
I just don't get this. I write a put and you buy it, it's an asset on your books and liability on mine. It's a transaction we enter to transfer risk from you to me. Why are we bad if we want to enter into such an arrangement?
"Puts" and "calls" are also known as stock "options" and are contractual obligations to purchase or sell actual assets at predefined prices, but these aren't necessarily derivative products. Derivative products are things like index funds and such, where they are measures of something else entirely but don't actually constitute tangible assets.
Like people trading instruments that attempt to track the spot price of some commodity. I think you're point is their asset appears as a liability on someone else's books, or vice versa, whereas if they held the actual thing, they would own it without it appearing on someone else's books. They say, I'm 10% in gold, but they're really not. You're saying their 10% in contractual obligations intended to track gold.
Had the $10,000,000,000,000.00 spent by the looters to mortgage our future been spent on infrastructure or on relaxed taxes and fees for start up businesses the wage growth would happen and less talk about min.wages.
Sadly trillions have been spent on DHS facilities and war games to corral the most irate citizens
That they are supposed to be representing. You all know we're the rest of the take went.
Yes. We had periods of high spending before without ZIRP. Gov't spending isn't good, but it alone does not account for this phenomenon.
I say read what you wrote "I vaguely understand there's more leverage now,but I don't get why"
The reason is that the country is being looted by (your hope and change) govt.waste ,regulations, entitlements.
If you disagree that the squeeze, the regulations the non-productive expenses that I very generally described on small business aren't the reason for your model to be "not working" then.
You should present your evidence.
The reason is I don't see a sudden change in the legal environment. I see amazing room for improvement, but I don't see it having changed in my lifetime enough to account for the fall in rates I've seen during my lifetime.
Maybe you don't look. Or you are a teenager.
Major Regulations 153% Higher in First Five Years Under Obama Than Bush
Government report finds regulations have spiked under Obama | TheHill
The pace of agencies issuing new rules and regulations has hit a record high under president Obama, whose administration’s rules have filled 468,500 pages in the Federal Register.
Red Tape Rising: Six Years of Escalating Regulation Under Obama
Obama pushing thousands of new regulations in Year 8 - Politico
For starters.
The low interest rates allowed your "hope and change guy" to virtually bury us in debt.
It's what the founding fathers hoped to avoid