Europe: Negative interest rates.

[ZenOps]

http://www.cbc.ca/news/business/european-central-bank-adopts-negative-interest-rates-1.2665814

"More drastically, it also cut the rate it pays on money deposited by banks from zero to minus 0.1 in the hope of pushing the banks to lend money rather than hoard it."

Coming soon to the US? They have been fearing the possible backlash of being the first to assuredly penalize people for saving.

[blairtruck]

mattress time

[Modelexis]

Can someone who has studied economics explain to me why deflation is bad?
Wouldn't deflation cause food prices and living costs to go down in price for the average citizen?

[Canmorite]

I've always found that type of move interesting. You're trying to force banks to lend to an economy that isn't borrowing to invest in business, because the recovery is 'muted'. They'll find some other place to invest the cash with a close to zero interest rate or higher :dunno:

[benyl]

Originally posted by Modelexis
Can someone who has studied economics explain to me why deflation is bad?
Wouldn't deflation cause food prices and living costs to go down in price for the average citizen?

Simple.

Why would I buy a loaf a bread for $1.00 in the morning when I know that same loaf will be $0.99 cents in the afternoon?

Just go on a grander scale. The economy would slow even more.

[CapnCrunch]

Originally posted by Modelexis
Can someone who has studied economics explain to me why deflation is bad?
Wouldn't deflation cause food prices and living costs to go down in price for the average citizen?

Deflation usually causes wages to decline more than anything else. That's the main problem. Everything is cheaper, but you make even less money.

[Modelexis]

Originally posted by benyl
Simple.

Why would I buy a loaf a bread for $1.00 in the morning when I know that same loaf will be $0.99 cents in the afternoon?

Just go on a grander scale. The economy would slow even more.
If I think about what I would do in this case, I don't think I would change my behavior. I buy chicken at safeway and lots of the time there are sales like half price. If I'm out of chicken and it's not on sale I still buy the chicken.

Same with my tech gear, computer cell phone etc, I know my cell phone and computer will be half price if I buy in 3 months but I want them now, same with computer games.

Not trying to be antagonistic, but maybe I'm an exception to the rule?

With the credit card debt in this country I don't know how the case could be made that people like to wait and pay less, they're happy to get it now and pay interest rates on top of the price.
Isn't the nature of a loan getting money that you don't want to wait and save up?

[Modelexis]

Originally posted by CapnCrunch
Deflation usually causes wages to decline more than anything else. That's the main problem. Everything is cheaper, but you make even less money.

Wouldn't that be the opposite of higher wages and higher prices? Wouldn't it even out or is it worse when you have lower wages and lower prices?

[GQBalla]

wheres zenops?

[Modelexis]

Originally posted by GQBalla
wheres zenops?

He's the OP, lol

[BigMass]

Originally posted by benyl


Simple.

Why would I buy a loaf a bread for $1.00 in the morning when I know that same loaf will be $0.99 cents in the afternoon?

Just go on a grander scale. The economy would slow even more.

poor example. People always need food, energy, housing. People don't defer spending on things they need. You're not going to stop eating because food in 6 months will be cheaper. People aren't going to stop driving or heating their homes because in 3 months gas prices will be cheaper. Even discretionary spending people don't defer. You KNOW that TV, smartphone, laptop, etc you just bought will be cheaper in a year. Yet people still buy those things. Deflation is a good thing and a reward to savers in a strong economy. In the US, periods of strong growth coincided with deflation. Saying deflation is bad and will hurt the economy is just scare tactics to push the inflation agenda. The REAL reason governments want inflation over deflation is they are the biggest debtors on earth and the only way they will ever pay their debts is to default through inflation. Also, the average person has debt so far up their asses they also want inflation. So it basically just comes down to the average joe overspending/overconsuming debtor and the government ganging up in a witch hunt against savers.

[Toma]

Don't confuse currency "deflation" with economic "deflation".

Low interest rates gut foreign investment, and demand for the currency, driving it's exchange through the floor. Imports become outragous. Purchasing power tanks. Trade balances sway....

Conversely, low interest rates (easy money) drive local prices to increase.... ie, inflation.

Hence the stories of a barrel of money needed to buy one loaf of bread.

Banks and the control of currency CANNOT be allowed to fall into private hands.

As Amschel Rothchilds once proclaimed....
Give me control of a nations money supply, and I care not who makes it’s laws

[CapnCrunch]

Originally posted by Modelexis


Wouldn't that be the opposite of higher wages and higher prices? Wouldn't it even out or is it worse when you have lower wages and lower prices?

It probably does even out somewhat. I have no idea which is worse in the end. I guess it depends on which creates a larger spread between prices and wages.

I haven't been around to experience extremes on either side, but I know runaway deflation seems to be regarded as being much worse, and a lot harder to get control of. Especially if its localized to one country's economy.

[ExtraSlow]

a large part of most economies is based on consumption. Deflation discourages consumption.

[GQBalla]

Originally posted by Modelexis


He's the OP, lol

LOL just saw that.

WHOOOPSSSS

to bad gold is on the raise currently.

Was going to buy a few OZ but didn't jump fast enough

[dexlargo]

What? Wouldn't a negative interest rate lead to higher inflation rather than deflation?

Unless I completely misunderstand, a negative interest rate on the central bank's part would just be the same effect as a low or zero interest rate, only more so - borrowing would become even cheaper which causes more spending and consumption, making things get more expensive, no?

[benyl]

Originally posted by dexlargo
What? Wouldn't a negative interest rate lead to higher inflation rather than deflation?

Unless I completely misunderstand, a negative interest rate on the central bank's part would just be the same effect as a low or zero interest rate, only more so - borrowing would become even cheaper which causes more spending and consumption, making things get more expensive, no?

Yes, that is what they are trying to achieve.

[dexlargo]

^Okay, I see I misunderstood what was going on, then. My apologies. Modelexis' question threw me off - he's not saying this will cause deflation, he's asking, "why are governments and central banks so anti-deflation that they would consider this?" Everything makes sense now.

[Feruk]

Originally posted by BigMass
The REAL reason governments want inflation over deflation is they are the biggest debtors on earth and the only way they will ever pay their debts is to default through inflation.
Bingo!


Originally posted by dexlargo
What? Wouldn't a negative interest rate lead to higher inflation rather than deflation?
That's the theory, and what any economics 101 course will teach. However, the last few years have shows that it doesn't work that way any more. Interest rates at historic lows... and inflation nowhere to be found.

[pheoxs]

Originally posted by Feruk

Bingo!


That's the theory, and what any economics 101 course will teach. However, the last few years have shows that it doesn't work that way any more. Interest rates at historic lows... and inflation nowhere to be found.

Yeah the problem now is there is so much debt already that people are already maxing themselves out. So many people have huge lines of credit / mortgages / car loans etc all at insanely low interest rates.

Now the governments have locked themselves in a scary situation. How many people do you think in Calgary would be underwater on their payments if interest rates went up even 1%?

Even those on fixed rates are affected when their term expires so it's not just the variable rates. Then you have people selling to get out / downsize / because they can't afford it and the prices start to drop.

Then everyone with a HELOC has less equity when their home starts falling in value, etc. It can all spiral fairly quickly. The BoC (as well as other countries) are going to be in a lot of trouble in a few years when they either need to raise interest to cool inflation, or if it doesn't pick up, they realize they can't do a damn thing to fix the economy.

[Toma]

Originally posted by Feruk

. Interest rates at historic lows... and inflation nowhere to be found.

Hahahaha hahahaha hahah ha!

[Feruk]

Originally posted by Toma
Hahahaha hahahaha hahah ha!
Tell me more. This article relates to ECB lowering interest rates due to lack of inflation; related quote: Inflation in the eurozone fell to 0.5% in May, down from 0.7% in April. This is well below the European Central Bank's target of just below 2%.

http://www.bbc.com/news/business-27717594

[BigMass]

Originally posted by Feruk

Tell me more. This article relates to ECB lowering interest rates due to lack of inflation; related quote: Inflation in the eurozone fell to 0.5% in May, down from 0.7% in April. This is well below the European Central Bank's target of just below 2%.

http://www.bbc.com/news/business-27717594

inflation is the increase in the money supply, which we have in record levels. Rising prices are a symptom of inflation. Rising prices depend on monetary velocity and manifest in different areas and asset classes. The government works for the %1 so most of their monetary stimulus is target at the top end. Banks, brokerages, big business etc. Rich get richer, etc. So where is the inflation when only the %1 are getting this cash flow? Easy. Look at the stock market. Dow went from 8000-16000 in a few years. Look at condo prices in Manhattan, look at record prices at fine art auctions, etc. There is your inflation. Every week I go shopping price of food is going up. Gas prices going up, energy prices going up, cost of living going through the roof. There's your inflation. Government numbers are a joke because they work backwards. They start with the number they want to put forth to the public and work backwards to develop a formula that gives them the number they want. That's why the formula for calculating inflation always changes. It's a huge scam.

[Sugarphreak]

...

[bob9979]

Originally posted by Sugarphreak
Sorry, but what would stop the EU banks from just pulling their cash and putting it somewhere that actually offers a positive rate� like Canada, instead of lending it to higher risk borrowers?

Infrastructure construction in the UK. Otherwise there is no better way to go. and German will be very very unhappy about that.

[Arash Boodagh]

What does it matter anyway, when the United States catches diarrhea, the Europeans get shit on too.

If any thing these new policies might decrease Anglo whites in destitute places like Greece and Spain to lower suicide rates, but a nations destiny can always change at the money masters whim at the flick of a switch... this includes Canada,

[Seth1968]

Originally posted by BigMass


inflation is the increase in the money supply, which we have in record levels. Rising prices are a symptom of inflation. Rising prices depend on monetary velocity and manifest in different areas and asset classes. The government works for the %1 so most of their monetary stimulus is target at the top end. Banks, brokerages, big business etc. Rich get richer, etc. So where is the inflation when only the %1 are getting this cash flow? Easy. Look at the stock market. Dow went from 8000-16000 in a few years. Look at condo prices in Manhattan, look at record prices at fine art auctions, etc. There is your inflation. Every week I go shopping price of food is going up. Gas prices going up, energy prices going up, cost of living going through the roof. There's your inflation. Government numbers are a joke because they work backwards. They start with the number they want to put forth to the public and work backwards to develop a formula that gives them the number they want. That's why the formula for calculating inflation always changes. It's a huge scam.

In addition to that:

Wages are not increasing accordingly, and food volume decreases while the packages remain the same size.

...and people still believe that our "government" has our best interest in mind.