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Geektastic
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  #2473562 29-Apr-2020 18:18
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No.  Retail deposit rates are still above zero.

 

For example here's BoJ data (PDF)

 

https://www.boj.or.jp/en/statistics/dl/depo/tento/te200422.pdf

 

Average interest rate on deposits : 0.001%  (But think of how little tax you'll pay on the interest!).

 

There is a significant systemic risk to an economy from negative rates (apart from the obvious associated fact that if you need negative rates for stimulus then you're already in very deep trouble).  The retail banking system is given further disincentive from holding cash reserves, they'll hold the bare minimum and unless prudential regulation is strictly enforced, they'll probably cheat on that as well.  You could just trust them to do the right thing...

 

 

 

 

 

 

 

 

Yes.

 

 

 

"After five years of negative rates imposed by the European Central Bank, German lenders are breaking the last taboo: Charging retail clients for their savings starting with very first euro in the their accounts.

 

While many banks have been passing on negative rates to retail clients for some time, they have typically only done so for deposits of 100,000 euros ($111,000) or more. That is changing, with one small lender close to Munich planning to impose a rate of minus 0.5% to all savings in certain new accounts. Another bank in the east of the country has introduced a similar policy and a third is considering an even higher charge.

 

The lenders are preparing for a prolonged period of negative rates as Europe’s economy slows. In September, the European Central Bank reduced the deposit rate to minus 0.5% from minus 0.4%, making it more expensive for banks to park their excess cash there. While there are some exemptions under the policy, years of sub-par profitability have left especially smaller lenders with few options to offset the cost of the ECB’s charges.

 

“The floodgates are open,” said Friedrich Heinemann, who heads the department on Corporate Taxation and Public Finance at the ZEW economic research institute in Mannheim. “We will soon see a chain reaction. Banks that do not follow with negative interest rates would be flooded with liquidity.”






Fred99
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  #2473613 29-Apr-2020 18:42
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Yikes.  


 
 
 
 


mattwnz
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  #2473627 29-Apr-2020 19:32
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Geektastic:

 

One impact seen elsewhere where they already have negative rates is banks charging savers for holding money....

 

 

 

 

 Wouldn't it be cheaper just to buy a safe and store cash in that? Could also mean a run on the banks, and NZ is one of the only similar countries without insurance, so people in NZ risk losing money if a bank fails. OBR means savers take a haircut. Don't think many people in NZ, including the elderly who often have their money in low risk TD's will ever agree to lose money from their savings, an I can see many just withdrawing it from banks. No wonder people put their money into houses, as there is no incentive to save when rates are so low.

 

 


mattwnz
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  #2473629 29-Apr-2020 19:41
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Senecio:

 

The best stimulus package would be a multi pronged approach.

 

 

 

 

Yes I agree, and as the government hasn't dismissed helicopter payments, I can see that being one of the things they do. Probably when we move to level 2, to help kickstart things. I understand Australia did helicopter payments after the GFC. IMO it has to apply to everyone, and they have to be forced to spend it within a period of time. Using it for a local holiday to support tourism could be an good use of it IMO.


networkn
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  #2473642 29-Apr-2020 20:45
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mattwnz:

 

Senecio:

 

The best stimulus package would be a multi pronged approach.

 

 

 

 

Yes I agree, and as the government hasn't dismissed helicopter payments, I can see that being one of the things they do. Probably when we move to level 2, to help kickstart things. I understand Australia did helicopter payments after the GFC. IMO it has to apply to everyone, and they have to be forced to spend it within a period of time. Using it for a local holiday to support tourism could be an good use of it IMO.

 

 

Heh, just what the economy needs, everyone required to go on holiday in a short period of time :) 

 

 


Geektastic
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  #2473683 29-Apr-2020 21:38
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mattwnz:

 

Geektastic:

 

One impact seen elsewhere where they already have negative rates is banks charging savers for holding money....

 

 

 

 

 Wouldn't it be cheaper just to buy a safe and store cash in that? Could also mean a run on the banks, and NZ is one of the only similar countries without insurance, so people in NZ risk losing money if a bank fails. OBR means savers take a haircut. Don't think many people in NZ, including the elderly who often have their money in low risk TD's will ever agree to lose money from their savings, an I can see many just withdrawing it from banks. No wonder people put their money into houses, as there is no incentive to save when rates are so low.

 

 

 

 


Depends on several things. If inflation is high, you put $1000 in your safe in January and in December you can buy $800 worth of stuff with it!

 

Gold, platinum and similar would be better usually because they represent real value and always have. Just go and buy bullion or coins from the NZ Mint instead...!

 

When we first arrived in NZ, gold was about US$700/oz. Today it is around US1,700/0z. 

 

 

 

So a US$10 million investment at $700 would today sell for a mere $24 million....

 

 

 

The other advantage of precious metals is that many of them are used in the manufacture of tech products and that is a sector that will just go up and up one way or another.






cshwone
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  #2473743 30-Apr-2020 04:23
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Geektastic:

 

Depends on several things. If inflation is high, you put $1000 in your safe in January and in December you can buy $800 worth of stuff with it

 

 

And with your example above, with negative interest rates,  put $1000 in the bank in January and in December you can buy $795 worth of stuff with it.


 
 
 
 


Lastman
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  #2473746 30-Apr-2020 05:36
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I believe there’s been a big outflow of term deposit money from banks due to declining rates. Even though the real worth equation might be interest rate versus inflation rate people see declining earnings/cash flow from deposits and look elsewhere to property or shares. This is part of the reason for the “asset bubble” effect in recent years and partly explains why shares have been so buoyant after the Covid crisis. Interest rates are a marker for yields on assets and when yields drop asset values rise as Bob Jones wrote in the 80s.

 

I think the negative 1/2 to 1 percent figure is regarded as about the lowest you can go in retail rates before it is cheaper to hoard cash in one way or another eg safety deposit box though dealing in cash obviously has a lot of obstacles/fees nowadays and probably increasingly so.

 

It’s interesting times with reserve banks and governments determined to be the safety backstop for all economic events. Bill English referred to this in saying the taxpayer was effectively supplying a “put” to the economic markets eg a promise to buy at some specified price to bail out and thus justifying more taxes on capital gains.

 

What was that book, “Someone’s always trying the to steal your cheese”?


MileHighKiwi
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  #2473758 30-Apr-2020 08:04
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I'm not sure how accurate this is but my understading, based on comments I heard recently, is that the banking system in NZ cant handle negative interest rates. Anyone with a better understanding of this able to shed any light on it?

Fred99
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  #2473764 30-Apr-2020 08:26
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cshwone:

 

Geektastic:

 

Depends on several things. If inflation is high, you put $1000 in your safe in January and in December you can buy $800 worth of stuff with it

 

 

And with your example above, with negative interest rates,  put $1000 in the bank in January and in December you can buy $795 worth of stuff with it.

 

 

You're not going to see high general inflation and negative interest rates at the same time.
(I say "general" inflation as we clearly had a period where some assets increased in value at a much faster rate than the CPI)  

 

 


cshwone
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  #2473814 30-Apr-2020 08:56
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Fred99:

 

cshwone:

 

 

 

And with your example above, with negative interest rates,  put $1000 in the bank in January and in December you can buy $795 worth of stuff with it.

 

 

You're not going to see high general inflation and negative interest rates at the same time.
(I say "general" inflation as we clearly had a period where some assets increased in value at a much faster rate than the CPI)  

 

 

 

 

Yep, well aware of that. I was just using Geektastic's example to make the point that negative interest rates will effectively devalue your money over and above any inflation impact if it's in the banking system.


Lastman
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  #2473819 30-Apr-2020 09:16
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MileHighKiwi: I'm not sure how accurate this is but my understading, based on comments I heard recently, is that the banking system in NZ cant handle negative interest rates. Anyone with a better understanding of this able to shed any light on it?

 

I think a review recently showed some Australian banks had systems that could cope with negative interest rates and some were not ready.

 

I expect it would be the same here. I’m sure banks are gearing up for it as fast as possible. 


Fred99
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  #2473821 30-Apr-2020 09:29
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cshwone:

 

Fred99:

 

You're not going to see high general inflation and negative interest rates at the same time.
(I say "general" inflation as we clearly had a period where some assets increased in value at a much faster rate than the CPI)  

 

 

Yep, well aware of that. I was just using Geektastic's example to make the point that negative interest rates will effectively devalue your money over and above any inflation impact if it's in the banking system.

 

 

Unless we have a period of general price deflation. 


Senecio
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  #2473908 30-Apr-2020 10:57
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mattwnz:

 

Senecio:

 

The best stimulus package would be a multi pronged approach.

 

 

 

 

Yes I agree, and as the government hasn't dismissed helicopter payments, I can see that being one of the things they do. Probably when we move to level 2, to help kickstart things. I understand Australia did helicopter payments after the GFC. IMO it has to apply to everyone, and they have to be forced to spend it within a period of time. Using it for a local holiday to support tourism could be an good use of it IMO.

 

 

 

 

I was in Australia after the GFC. The stimulus package there was means tested. My wife got the money, I didn't. She proceeded to buy a MacBook with her stimulus money, immediately seeing most of it go offshore and little to no tax paid on it. There was no control over how it could be spent.

 

 

 

If there is a cash package paid in NZ in the coming months then I'd like to use it to support our local hospitality outlets. Whatever cafes and restaurants have survived will be getting our patronage.


Geektastic
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  #2473953 30-Apr-2020 11:29
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Senecio:

 

[

 

I was in Australia after the GFC. The stimulus package there was means tested. My wife got the money, I didn't. She proceeded to buy a MacBook with her stimulus money, immediately seeing most of it go offshore and little to no tax paid on it. There was no control over how it could be spent.

 

 

 

If there is a cash package paid in NZ in the coming months then I'd like to use it to support our local hospitality outlets. Whatever cafes and restaurants have survived will be getting our patronage.

 

 

 

 

I rarely use cafes and restaurants - probably not even one visit per month on average.

 

 

 

On the other hand, I use my Mac every day....!

 

 

 

That aside, a more sensible stimulus was suggested in an article recently - moving GST to zero for a year or two. Everyone benefits, businesses get less red tape to deal with etc etc.






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