March 6, 2016

THERE ARE TWO THINGS NO ECONOMISTS BELIEVE IN...:

In the Bizarro World of Negative Interest Rates, Saving Will Cost You (JEFF SOMMER MARCH 5, 2016, NY Times)

[S]omething radically different is afoot today. It's called negative interest -- and it is an inversion of the traditional relationship between lenders and borrowers.

"It's all upside down," said Kathy A. Jones, chief fixed-income strategist at Charles Schwab. "Negative interest is hard to even think about. Our whole financial system is built the other way, on positive interest rates. This is mind-boggling."

Negative rates have been spreading through important sectors of high finance in Europe and Asia. They are not being offered in a systematic way to retail investors, as far as I know, but Bloomberg found last month that more than $1.1 trillion worth of German bonds and about $4.5 trillion in Japanese government debt carried negative interest, and more than $7 trillion in bonds over all had negative yields. Central banks, which have helped engineer the arrival of negative interest rates, are buying some of these bonds themselves, but private investors are doing so, too, accepting probable losses.

...deflation and markets.  Because, if they did, thw willingness to accept negative rates would be perfectly logical to them. The borrower is, of course, paying you back more than he borrowed.

Posted by at March 6, 2016 2:31 PM

  

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