Get paid to borrow money!

On the possibility of negative nominal interest rates.

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• borrowing
• crisis
• depression
• ethics
• money
• politics
• recession

[gunsandbullhorns]

We can do negative-IR if we subsidize it through inflation. ...which I'm pretty sure Paul Krugman has suggested doing that (I'm just guessing, based on what I've read of Krugman).

I think the key question is "if we do negative-IR, who gets shafted?"

I'm not for shafting anyone. I'm against negative-IR. I'm against any unnatural manipulation of Interest-Rates. That sort of meddling is precisely what causes booms and depressions, in the first place.

[dakshinamurti]

Glad to know you are also against it.

[ZullGostnu]

A bank loaning at a negative interest rate is betting you won't repay the loan and hopes to collect the asset. Similar to how banks gave out cheap loans with 5 year balloon payments, which created the current banking crisis. Be careful of a good deal, it is usually a fraud.

[dakshinamurti]

hehe, sure, I loathe these kinds of things :)

[BukharianFinancial]

dush - u r not considering the credit risk - it might be worth to hold / carry currency and pay the tax then lend and be exposed to credit risk which u can not control.

[dakshinamurti]

estonia latvia and lituania are totally in debt. All ratios are much worse then in 1997 in the asian currency crisis. Specifically the ratio of external debt/GDP. Estonia has an external debt of 130% GDP... These countries have all contracted loans with the IMF. Some awful practices like mortage loans in foreign currencies, like JPY are ruining those countries, as their local currencies are tanking vs the currencies in which the mortgages are denominated. This is BAD.

[dakshinamurti]

I believe we will see hyperinflation. I have received particularly worrying reports from the european banking sector. Specifically eastern europe, and western banks that have made huge loans to those countries, specifically austria. Some predict a 10% default rate on those loans is enough to totally eradicate the austrian banking sector, and some predict at least 20% default rate.

[gunsandbullhorns]

P.S. I only said 5% because I don't want to get into an argument with somebody who thinks we had under 10% inflation.

[gunsandbullhorns]

In 2004, the fed pushed interest rates below 2%. I think they even dropped as low as 1%, right?

What sort of inflation did we have in 2004? Do you think that 5% is a conservative enough figure?

It seems to me that if we look at this in terms of real-value, there's alot of folks who actually got a negative-IR deal, post-facto.

I don't think this helped the economy. I think this contributed to the mess we're in now.

[gunsandbullhorns]

If the depression was 7 years deep already, and balancing the budget screwed everything up, then that's a pretty good indicator that the New Deal was f—ing up the recovery process.

Since we have polar-opposite opinions about this, let me ask you a few more questions we might disagree on.

1) What caused the Great Depression?

2) Why did FDR confiscate our gold in '33?

3) Did FDR intentionally provoke and allow Pearl Harbor to get attacked with their guard down, as a pretext to enter the war?

[CousinoMacul]

"... just as the New Deal prolonged and deepened the depression of the 1930's."

That's demonstrably false. The New Deal helped quite a bit. It was when Roosevelt balanced the budget in 1937 by raising taxes and cutting spending that the Depression got worse, and it wasn't until the huge tax and spend initiative known as WWII that it finally ended.

[gunsandbullhorns]

Japan's recession was prolonged because the Japanese refused to adjust their employment and wage habits. They have a tradition of life-time employment, and company:employee loyalty.

Our depression WILL be that bad, if we try to stall unemployment or resist wage-reductions, or if we refuse to adjust our spending habits.

In other words, if we get another "New Deal", the depression will be deepened and prolonged, just as the New Deal prolonged and deepened the depression of the 1930's.