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European Central Bank adopts negative interest rates

Fenton said:
Not gonna work guys, its not going to work.

Hell, why dont we just start up the Subprime market again ?
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It may have worked about 100 years ago but the fact remains this is a global market/economy and this idea would have only worked about 100 years ago in small communities.

The thought process behind the idea ignore the "global economy" aspect, as if the EU is segregated from the rest of the world.

Their idea destroys the idea of using a bank - not only that but is basically forcing banks to lend (other peoples money) at pretty much zero interest. The funny part is that everyone is going to pull their money out of the banks and there will be no money to lend and the banks will go bankrupt...

So I suppose their solution is to get rid of banks entirely, and I don't think the global market will respond kindly to this policy. In one swift move the EU just segregated itself from the global financial community....

This is what happens when you allow governments to have too much power - especially when you have a union of governments.
 
Rainman05 said:
Why?
Go on, daze me with your unmatched insight. I'm sure it's more insightful than that of Mr.Nick.

EDIT: Also, Europe doesn't have subprimes. European banks however did buy toxic US subprimes like all the US banks did and that was a big mistake.
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I'll tell you why - because it makes banks moot and will eventually bankrupt the banks entirely once individuals start pulling their money from the banks.

How can a bank lend money when they have none, because they're basically charging people to hold their money.

What's the next idea going to be? force people to use banks? prevent them from pulling their money so it can be "loaned out" at basically zero percent interest?
 
Mr.Nick said:
It's basically nothing more than forced lending and forced spending.

I'll say this much tho - I have never heard of a "negative interest rate."

It appears what the EU is attempting to do is force an "economic boom" with this nonsense policy.

I wonder how they're handling investments???

And as far as the "rich getting richer" I don't see how that is even remotely possible considering the government(s) are basically forcing people to spend and not save - which is the entire point of this nonsense in the first place.
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Yeah, I was wondering the same thing. It's forcing the banks to not stockpile money and instead invest it.

The worldwide banking crisis occurred when the risky loans that banks were making were not backed by sufficient capital to ensure liquidity in the market. Now that banks have a stockpile of money the EU is forcing them to pull the money out of the bank and make risky investments....
 
Mr.Nick said:
I'll tell you why - because it makes banks moot and will eventually bankrupt the banks entirely once individuals start pulling their money from the banks.

How can a bank lend money when they have none, because they're basically charging people to hold their money.

What's the next idea going to be? force people to use banks? prevent them from pulling their money so it can be "loaned out" at basically zero percent interest?
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I didn't ask you that question, I asked the other guy, Fenton. You still fail to reply to the comment I addressed you.

Comment #24.
Sure you do.

This proves just how incompetent you are.

if you hoard money, what happens when money becomes subjected to inflation? It becomes devalued. that's right, so hoarding money means that tomorrow your money is worth less. SO why would people hoard money? No they won't, they would spend money and maybe invest money so that if you invest it you get something out of it that is greater than the value you get from hoarding it which is negative value due to inflation. So now that we have the principles settled in, why don't you gracefully tug your tail between your legs and recognize that you know nothing, Jon Snuuuh.
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Do reply genius. Come on.

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You have no clue what you're talking about. It's laughable if it isn't so sad.
 
jmotivator said:
Yeah, I was wondering the same thing. It's forcing the banks to not stockpile money and instead invest it.

The worldwide banking crisis occurred when the risky loans that banks were making were not backed by sufficient capital to ensure liquidity in the market. Now that banks have a stockpile of money the EU is forcing them to pull the money out of the bank and make risky investments....
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Unfortunately, somebody didn't read the article.

And ofc, I mean you.

Offer long-term loans to banks at cheap rates until 2018. The targeted loans would be charged a fixed rate, meaning that the rate could not rise, even if the ECB raises its benchmark. That gives banks confidence they have cheap funding out through 2018. The loans would be capped at 7 per cent of a bank's lending to companies.
Start doing "preparatory work" on a program to buy batches of loans to small businesses in the form of bonds, a step to funnel more credit to companies through financial markets.
Stop collecting weekly deposits aimed at offsetting the monetary effects of earlier bond purchases. That would leave an additional 175 billion euros in the financial system that banks could in theory use to lend to each other or to companies.
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The money is for the most part, directed. You can't use that money for stuff that isn't in the contract. So as I said in post #20, I, the ECB, lend you, the bank, X sum of money but you have to use that money to either loan it to start-ups or small companies with very low interest rates. that's an example.

The reason this is being done is because the euro is so strong that the inflation rate is lower by a lot, by 1.5%, than it was expected. And that means you have to raise inflation to the standard that was estimated and indeed, the one that is desirable. The USA's inflation rate is 2% or higher and it is desirable for it to be at that level.
 
Rainman05 said:
Unfortunately, somebody didn't read the article.

And ofc, I mean you.



The money is for the most part, directed. You can't use that money for stuff that isn't in the contract. So as I said in post #20, I, the ECB, lend you, the bank, X sum of money but you have to use that money to either loan it to start-ups or small companies with very low interest rates. that's an example.

The reason this is being done is because the euro is so strong that the inflation rate is lower by a lot, by 1.5%, than it was expected. And that means you have to raise inflation to the standard that was estimated and indeed, the one that is desirable. The USA's inflation rate is 2% or higher and it is desirable for it to be at that level.
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Hmmmm.... so in order to show that these aren't risky loans you argue that they are making required to make small business loans at low interest rates... aka risky loans.

Also the negative interest on money banks deposit with ECB means that they will be less likely to keep sufficient money to cover loans since the policy all but forces investment.

Pro-Tip: They aren't loaning money due to risk.
 
Rainman05 said:
I didn't ask you that question, I asked the other guy, Fenton. You still fail to reply to the comment I addressed you.

Comment #24.


Do reply genius. Come on.

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You have no clue what you're talking about. It's laughable if it isn't so sad.
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I've addressed the problems with this economic model/idea several times already, and all you said was that I wasn't competent and that it would work...

Do you not see the problem here?
 
Rainman05 said:
Why?
Go on, daze me with your unmatched insight. I'm sure it's more insightful than that of Mr.Nick.

EDIT: Also, Europe doesn't have subprimes. European banks however did buy toxic US subprimes like all the US banks did and that was a big mistake.
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No, Subprime backed SECURITIES were distributed throughout the worlds Capital markets wrapped up and hidden away in CDO tranches like Time Bombs.

And Europe DEFINITELY did have a subprime market.

Spain, Italy AND Ireland had their own little Sub-Prime experiments.

They all failed miserably.
 
I would love to know how this idea works beyond flooding the market with Eruos that aren't backed by anything???

Why the hell would I keep my money in a back in which my money only isn't backed but is being handed out like cheap mints at a ****ty hotel???

Not to mention the whole paying the bank to hold my money like they're doing me a favor.

This is seriously the most bizarre economic ideas I have ever heard - what are we going to call it "Robinomics."

I've never even heard of such a bizarre economic concept or theory.
 
Rainman05 said:
No, it's not to you, it's to banks.
You will still get the same interest you did on your savings account.

By offering negative interest rates to bank you are encouraging banks to offer loans at low rates.

So when I, the ECB, give you, the bank, a loan at NO INTEREST, I'm giving you a chance to make money on my terms. So I'll give you 10mil euros with no interest means that 10 years from now, you'll still have to pay me back just the 10mil euros. You can do nothing with that money and you'd lose or win nothing over those 10 years. Ofc, I, the ECB, tell you to loan those 10mil euros at low interest to people who wanna... I don't know, buy cars. It's basically a stimulus to the car industry. So I tell you to loan all that 10mil euros at 1% interest to people who wanna buy cars. At the end of the day, you make money and when you have to pay me back, you'll have earned something. Better than earning nothing because when you try and give loans to people who wanna buy cars are 5% interest, they don't take them. In reality, it's a stimulus to the car industry, a subsidy basically and a way to make some of my banker friends richer.

But when I give you negative interests, I, the ECB, will tell you : take 10mil euros, loan it the way I tell you to loan it (say, for start-up businesses and the interest at 0.5%) and I'll pay you a 0.1% of the value of the loan for 5 years. So you'll be making money from the 0.5% interest that you get from people who wanna do start-ups and the 0.1% from me and 10 years from now when you give me back the 10mil euros, you'll have made a bunch of money.

Now ofc, I, the ECB, in order to give you the 0.1% of the total value in negative interest, I have to print out money. Which means deflation. which means the euro goes down in value. Because the euro is a strong currency and has just 0.5% inflation as opposed to say, the dollar which has a 2% inflation rate .
Current US Inflation Rates: 2004-2014 | US Inflation Calculator
I will effectively make the euro less valuable in contrast to other currencies. Which is both good and very, very bad. It's going to be a kick in the nuts to heavily indebted countries that owe debt to non-EU countries. Why non-EU countries? Because as it's been seen, with countries like Greece and Portugal, it's been something called "restructuring of debt" in the EU which basically was an adjusting of the debt levels of the EU to not be ****ed by rate of the euro.

So what the ECB is trying to do get the euro at a 0.7% inflation rate. Which again, it's good and bad. Most countries agree on a 1.5-2.5% inflation rate to be optimal.
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You don't understand what negative interest rates mean? It means you pay them to hold and use your money, period.
 
Fenton said:
No, Subprime backed SECURITIES were distributed throughout the worlds Capital markets wrapped up and hidden away in CDO tranches like Time Bombs.
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Yes, but it was all based on the private unregulated sub-prime market in the US. When housing prices started to collapse, these were the first mortgages to go under, and they were lopped with relatively good stuff and figuring out the actual worth of this crap was and is near impossible. It was a massive ponzi scheme. This is what caused the crisis.

And Europe DEFINITELY did have a subprime market.
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No. Do you know what sub-prime means?

Spain, Italy AND Ireland had their own little Sub-Prime experiments.
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Again no. Sub-prime is pretty much illegal and always has been. Giving mortgages to people who could not in the short, middle or long run be able to pay for them is illegal and always has been.
 
PeteEU said:
Yes, but it was all based on the private unregulated sub-prime market in the US. When housing prices started to collapse, these were the first mortgages to go under, and they were lopped with relatively good stuff and figuring out the actual worth of this crap was and is near impossible. It was a massive ponzi scheme. This is what caused the crisis.



No. Do you know what sub-prime means?



Again no. Sub-prime is pretty much illegal and always has been. Giving mortgages to people who could not in the short, middle or long run be able to pay for them is illegal and always has been.
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It wasn't " illegal " when Clinton via executive orders forced lenders to lower their lending standards.

In fact lenders who refused to lower their standarsa were subjected to DOJ action.

And " Sub-Prime " means below prime.
 
grip said:
You don't understand what negative interest rates mean? It means you pay them to hold and use your money, period.
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That's exactly what I said in so many words only I was trying to explain what that meant. And it meant inflation. I give you 10mil euros to use to give loans and because I also have to pay you interest on the money I lent you, what do I do, as the ECB? I print out euros and do inflation. So that's the whole point of the exercise, to increase inflation from 0.5 which is now, to 0.7 because last year Draghi, the ECB director, believed the inflation rate would be at 2% but instead, it's waaay lower.
 
jmotivator said:
Hmmmm.... so in order to show that these aren't risky loans you argue that they are making required to make small business loans at low interest rates... aka risky loans.

Also the negative interest on money banks deposit with ECB means that they will be less likely to keep sufficient money to cover loans since the policy all but forces investment.

Pro-Tip: They aren't loaning money due to risk.
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It's not about giving risky loans, it's about giving loans and extending a credit line to companies and start-ups.

The problem in the USA is that banks loan too much money too easily. In most European countries, especially after 2009, the thing is just the opposite. You have to fight tooth and nail to get a loan for small businesses, regardless of how risky or not they are. Which is why a lot of businesses that got started were started at least partially with state grants.
 
Does this not essentially force the banks to become brokers?
 
Rainman05 said:
That's exactly what I said in so many words only I was trying to explain what that meant. And it meant inflation. I give you 10mil euros to use to give loans and because I also have to pay you interest on the money I lent you, what do I do, as the ECB? I print out euros and do inflation. So that's the whole point of the exercise, to increase inflation from 0.5 which is now, to 0.7 because last year Draghi, the ECB director, believed the inflation rate would be at 2% but instead, it's waaay lower.
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Why would he want inflation to be 2%? What is the benefit and to whom?
 
Printing money only works if the money goes into circulation. Most firms are hoarding cash because they simply have nothing they can do with it. Funny how, even as permabulls are ranting about meteorology, you have central banks literally going, "Look! I'll pay you to take my money!" The desperation speaks volumes more than any set of statistics.
 
cholla said:
Why would he want inflation to be 2%? What is the benefit and to whom?
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Because that's considered a good amount to keep up with the growth of the economy.

If you don't have inflation and the economy grows, the value of the currency goes up, and that's what happened to the euro.
The 2% target inflation is an amount considered to be a good to keep up with the economic development of a country so that the value stays the same. So you want the inflation to match growth but that's not what happened.
From 2012 to now, the euro grew from 1.2 to 1.4 against the dollar. A 15% increase. This is because the euro was so strong and so popular and everyone bought it.

The benefit of having a stable currency is to everyone.
If the currency devalues rapidly, it favors the speculators who will dump the euros on the market the moment they see it goes down.
If the currency increases rapidly, it favors the rich who have a lot of euros in the bank. But because costs go up, the middle class is screwed.

So a stable currency that is valued at the right amount is favorable to the middle class and everyone. And to have that, you need inflation to counter growth which would make a currency stronger. You wanna keep it the same levels.
 
Rainman05 said:
That's exactly what I said in so many words only I was trying to explain what that meant. And it meant inflation. I give you 10mil euros to use to give loans and because I also have to pay you interest on the money I lent you, what do I do, as the ECB? I print out euros and do inflation. So that's the whole point of the exercise, to increase inflation from 0.5 which is now, to 0.7 because last year Draghi, the ECB director, believed the inflation rate would be at 2% but instead, it's waaay lower.
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If they're trying to stimulate the economy, then they're going about it all wrong.

Supply-side economics may have helped boost the US out of the 70's stagflation, during the 80's with Reagan's tax cuts, but this is a different animal they're facing today. The trickle-down approach to economic policy doesn't work because that's not were the money problem exists, it's at the lower levels.

From 1996 to 2006 the banks and lenders were giving away unsecured, easy credit that grew the economy from the bottom up. That in turn made the top wealthier than ever before and made everyone happy, till the defaults began. We grew the global economy at an unsustainable pace and now are trying to figure some magic way of regaining that momentum.

We have all this gov't and private debt left over as a result and skyrocketing budgets, because of the addiction to spending and a large unemployed workforce. And by creating disposable products, with designed obsolescence, it's a materialistic existence that's steadily losing value to profiteers.
 
Its what happens when the EU adopts the Keynesian economic outlook that claims spending is everything. What morons. :roll:
 
grip said:
If they're trying to stimulate the economy, then they're going about it all wrong.

Supply-side economics may have helped boost the US out of the 70's stagflation, during the 80's with Reagan's tax cuts, but this is a different animal they're facing today. The trickle-down approach to economic policy doesn't work because that's not were the money problem exists, it's at the lower levels.

From 1996 to 2006 the banks and lenders were giving away unsecured, easy credit that grew the economy from the bottom up. That in turn made the top wealthier than ever before and made everyone happy, till the defaults began. We grew the global economy at an unsustainable pace and now are trying to figure some magic way of regaining that momentum.

We have all this gov't and private debt left over as a result and skyrocketing budgets, because of the addiction to spending and a large unemployed workforce. And by creating disposable products, with designed obsolescence, it's a materialistic existence that's steadily losing value to profiteers.
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Supply side does work.

It works fine, just look at Texas's economy.

Fiscal and monetary stimulus ? That doesn't work.

This push to try and force people to spend wont work either.
 
Fenton said:
Supply side does work.

It works fine, just look at Texas's economy.

Fiscal and monetary stimulus ? That doesn't work.

This push to try and force people to spend wont work either.
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Supply side works in Texas, not just because of the low taxes drawing manufacturers but because of the new oil/gas boom from fracking, like the economy in ND. That's a limited area and if all states lowered taxes equally and had offshore and shale reserves, Texas would lose it's appeal.

I do agree with the bolded above that trying to force, trick or manipulate people into spending what they don't have is failing.
 
Mr.Nick said:
The entire problem starts and ends with the Euro. That was one of the worst economic ideas ever.
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I don't know I think sub prime mortgage lending is right up there.
 
grip said:
Supply side works in Texas, not just because of the low taxes drawing manufacturers but because of the new oil/gas boom from fracking, like the economy in ND. That's a limited area and if all states lowered taxes equally and had offshore and shale reserves, Texas would lose it's appeal.

I do agree with the bolded above that trying to force, trick or manipulate people into spending what they don't have is failing.
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Again, the oil and gas industry accounts for only 10 percent of Texas's GDP.

So its incorrect to attribute Texas's economic success to oil and gas.

Companies aren't relocating here because of oil.
 
Fenton said:
Again, the oil and gas industry accounts for only 10 percent of Texas's GDP.

So its incorrect to attribute Texas's economic success to oil and gas.

Companies aren't relocating here because of oil.
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You didn't address my comment about what happens if ALL states drop their taxes equally? There's no boom for anyone.
 
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