ultra low / negative interest rates in Germany

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economicsjunkie
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Re: ultra low / negative interest rates in Germany

Post by economicsjunkie » Fri Feb 12, 2016 9:16 pm

technovelist wrote:
dualstow wrote: Whether or not gold will depreciate, it is these low-yield times that make it easy for me to buy it. After all, the argument often goes that gold "just sits there." If my savings were earning 5%, I'd have to think hard about it, but right now my cash is just sitting there.
With savings "earning" negative rates, it's really hard to come up with an argument against gold, which pays a big fat 0% (before storage fees, but still...).
The relative cost benefit calculations of rational investors should certainly favor gold the more these ultra low rates approach gold's yield (0% lol), and at a dose dependent rate one would think. This is why I tend to believe that deflation can be a huge push for gold prices. We'll probably see the answer unravel before us over the coming years.
Last edited by economicsjunkie on Fri Feb 12, 2016 9:20 pm, edited 1 time in total.
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ochotona
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Re: ultra low / negative interest rates in Germany

Post by ochotona » Sat Feb 13, 2016 8:43 am

economicsjunkie wrote: The relative cost benefit calculations of rational investors should certainly favor gold the more these ultra low rates approach gold's yield (0% lol), and at a dose dependent rate one would think. This is why I tend to believe that deflation can be a huge push for gold prices. We'll probably see the answer unravel before us over the coming years.
Yes, maybe the value of gold is a concave-upward parabolic curve, with the ends anchored in inflation and deflation. But we have only thought of it as an inflation-anchored sloping line, because deflation has been pretty rare...
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Re: ultra low / negative interest rates in Germany

Post by BearBones » Sat Feb 13, 2016 10:04 am

technovelist wrote:
dualstow wrote: Whether or not gold will depreciate, it is these low-yield times that make it easy for me to buy it. After all, the argument often goes that gold "just sits there." If my savings were earning 5%, I'd have to think hard about it, but right now my cash is just sitting there.
With savings "earning" negative rates, it's really hard to come up with an argument against gold, which pays a big fat 0% (before storage fees, but still...).
It has and always will pay 0%. Only benefit is its value vs the currency, right? You two are betting that gold increases (again) rather than decreases in a severe and/or sustained deflationary environment. It may. Or it could be that its price has been severely inflated by central banks' sustained policies of low interest (the world has been pushed out of cash and bonds so as to ignite growth and prop up otherwise sick economies), and it will drop in value just like real estate, equities and virtually everything else we own.
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Re: ultra low / negative interest rates in Germany

Post by Lang » Sat Feb 13, 2016 10:53 am

Citi sees Canada, the Czech Republic, Israel and Norway possibly adopting negative interest rates this year:
http://business.financialpost.com/news/ ... -citi-says
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technovelist
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Re: ultra low / negative interest rates in Germany

Post by technovelist » Sat Feb 13, 2016 1:24 pm

BearBones wrote:
technovelist wrote:
dualstow wrote: Whether or not gold will depreciate, it is these low-yield times that make it easy for me to buy it. After all, the argument often goes that gold "just sits there." If my savings were earning 5%, I'd have to think hard about it, but right now my cash is just sitting there.
With savings "earning" negative rates, it's really hard to come up with an argument against gold, which pays a big fat 0% (before storage fees, but still...).
It has and always will pay 0%. Only benefit is its value vs the currency, right? You two are betting that gold increases (again) rather than decreases in a severe and/or sustained deflationary environment. It may. Or it could be that its price has been severely inflated by central banks' sustained policies of low interest (the world has been pushed out of cash and bonds so as to ignite growth and prop up otherwise sick economies), and it will drop in value just like real estate, equities and virtually everything else we own.
If its price has been severely inflated, then this must be one of the cases of hidden inflation that everyone is always whispering about, since given the enormous increase in central bank balance sheets in the last 10 years or so, gold doesn't look severely inflated to me.
Another nod to the most beautiful equation: e + 1 = 0
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Re: ultra low / negative interest rates in Germany

Post by ochotona » Sat Feb 13, 2016 2:11 pm

technovelist wrote: If its price has been severely inflated, then this must be one of the cases of hidden inflation that everyone is always whispering about, since given the enormous increase in central bank balance sheets in the last 10 years or so, gold doesn't look severely inflated to me.
Gold is not severely inflated? Relative to what baseline? Relative to 2001, the CAGR is 11%. That's a big step up over a long period of time. Now, I have no earthly idea what it's going to do in the next year, may it goes up more, but to say it isn't inflated where it is now is a pretty bold claim.
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Re: ultra low / negative interest rates in Germany

Post by BearBones » Sat Feb 13, 2016 2:20 pm

technovelist wrote: If its price has been severely inflated, then this must be one of the cases of hidden inflation that everyone is always whispering about, since given the enormous increase in central bank balance sheets in the last 10 years or so, gold doesn't look severely inflated to me.
Can you explain more?

Sure wish I had a better understanding of economics. Wonder what the MMT folks would think the of the consequence of the "enormous increase in central bank balance sheets in the last 10 years or so." Does it do anything if it doesn't make it into consumer's pockets? Anyone want to comment? Moda, Stone, Gumby around?

Hidden inflation. Or perhaps just an aggressive attempt to prevent deflation that would have happened otherwise. With resultant artificially inflated values of such things as equities, real estate and, perhaps, gold. If this fails, as I am beginning to think it might, then the values of such things will decline, perhaps severely.

But, hey, could be wrong. BullBones, my nemesis, sure thinks I am!
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Re: ultra low / negative interest rates in Germany

Post by technovelist » Sat Feb 13, 2016 6:04 pm

ochotona wrote:
technovelist wrote: If its price has been severely inflated, then this must be one of the cases of hidden inflation that everyone is always whispering about, since given the enormous increase in central bank balance sheets in the last 10 years or so, gold doesn't look severely inflated to me.
Gold is not severely inflated? Relative to what baseline? Relative to 2001, the CAGR is 11%. That's a big step up over a long period of time. Now, I have no earthly idea what it's going to do in the next year, may it goes up more, but to say it isn't inflated where it is now is a pretty bold claim.
And relative to 1/1/2013, the CAGR is -9.26%, so gold must be wildly underpriced!

My point, of course, is that you can get almost any number you want if you cherry-pick the date range.
Another nod to the most beautiful equation: e + 1 = 0
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Re: ultra low / negative interest rates in Germany

Post by technovelist » Sun Feb 14, 2016 9:08 am

BearBones wrote:
technovelist wrote: If its price has been severely inflated, then this must be one of the cases of hidden inflation that everyone is always whispering about, since given the enormous increase in central bank balance sheets in the last 10 years or so, gold doesn't look severely inflated to me.
Can you explain more?

Sure wish I had a better understanding of economics. Wonder what the MMT folks would think the of the consequence of the "enormous increase in central bank balance sheets in the last 10 years or so." Does it do anything if it doesn't make it into consumer's pockets? Anyone want to comment? Moda, Stone, Gumby around?

Hidden inflation. Or perhaps just an aggressive attempt to prevent deflation that would have happened otherwise. With resultant artificially inflated values of such things as equities, real estate and, perhaps, gold. If this fails, as I am beginning to think it might, then the values of such things will decline, perhaps severely.

But, hey, could be wrong. BullBones, my nemesis, sure thinks I am!
I'm an Austrian economist, so what I think about money is different from what the MMT and other "new" schools of economics teach. But this is getting somewhat off-topic so I'll post my comments on that separately.
Another nod to the most beautiful equation: e + 1 = 0
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Re: ultra low / negative interest rates in Germany

Post by lordmetroid » Sun Feb 14, 2016 6:12 pm

This is why bonds, even at 1% is good.
https://www.youtube.com/watch?v=PHe0bXAIuk0
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Re: ultra low / negative interest rates in Germany

Post by economicsjunkie » Tue Feb 16, 2016 12:37 pm

BearBones wrote: Wonder what the MMT folks would think the of the consequence of the "enormous increase in central bank balance sheets in the last 10 years or so." Does it do anything if it doesn't make it into consumer's pockets? Anyone want to comment? Moda, Stone, Gumby around?
If you print a bunch of money and bury it in your backyard, does it do anything? I think not.

If I understand the MMT folks correctly they would argue that when demand for credit is saturated the Fed can't enact monetary policy by means of bank reserves, since those are only available for interbank settlements. Mainstream economists still think that banks get the reserves first, and then loan it out and via multiplier the money supply rises throughout the economy. But empirical evidence shows banks lend money first, and then later on borrow the reserves to meet legal requirements.

I've heard some of them say the Fed should not get involved in interbank loans and just let the rate fall to 0% as it would naturally (in the interbank lending market that is, not everywhere!).

I believe they would argue the only entity that could enact effective monetary policy would be the Treasury by means of spending money on hiring the unemployed.

I'm not a Keynesian and ultimately consider myself an Austrian as well philosophically, but I think it's hard to argue that it would be preferable to put people to work instead of sending them welfare/unemployment checks.
Last edited by economicsjunkie on Tue Feb 16, 2016 12:40 pm, edited 1 time in total.
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Re: ultra low / negative interest rates in Germany

Post by Lang » Tue Feb 16, 2016 1:57 pm

QE has also increased bank deposits, not just reserves, because the Fed bought a lot of government bonds and mortgage-backed securities from pension funds and other investors.
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