Author Topic: ECB cuts key rate for first time since 2016  (Read 436 times)

Mackin USA

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ECB cuts key rate for first time since 2016
« on: September 12, 2019, 12:37:10 PM »
The bank’s deposit rate, trimmed by 10 basis points, is now −0.50%, meaning that commercial banks must effectively pay the ECB to hold their excess cash balances overnight.

https://beta.finance.yahoo.com/news/ecb-cuts-rates-for-first-time-since-2016-as-recession-fears-grow-114702200.html
Mr. Mackin

ergophobe

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Re: ECB cuts key rate for first time since 2016
« Reply #1 on: September 12, 2019, 04:08:22 PM »
So effectively they are trying to make saving cash a bad investment so that people will be encouraged to spend their money, invest in (probably overheated) stocks, or borrow money?

I'm not an economist... but that seems like a grasshopper plan, not an ant plan
http://www.read.gov/aesop/052.html

littleman

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ergophobe

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Re: ECB cuts key rate for first time since 2016
« Reply #3 on: September 14, 2019, 01:15:32 AM »
>>Trump

Thanks. I saw the headline and as you can see from my question above, am trying to wrap my head around the follow-on effects of a zero interest rate. Why the president would want it in the run up to an election is obvious. What it would mean for the economy seems obvious, but I wasn't sure.

That article helps a bit. The idea that the Fed could cut the interest rate to zero and then refi the US national debt is boggling.


Mackin USA

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Re: ECB cuts key rate for first time since 2016
« Reply #4 on: September 14, 2019, 10:27:01 AM »
Negative interest rates are BAD
Mr. Mackin

littleman

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Re: ECB cuts key rate for first time since 2016
« Reply #5 on: September 14, 2019, 05:51:57 PM »
I suppose gold will spike if this happy.

ergophobe

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Re: ECB cuts key rate for first time since 2016
« Reply #6 on: September 15, 2019, 05:12:17 AM »
It upends everything that you think you know. It makes absolute sense that the bank would pay me for the privilege of using my money and other people would pay the bank for the privilege of using their money (which is actually my money) and the bank, providing some guarantees, would get a cut. This is the finance system I have always known.

What blows me away is upending all of this for a system where I pay the bank for the privilege of keeping my money in a safe place, and the bank then pays someone to go out and use that money.

I realize that just because the overnight rate from a central bank goes negative, that doesn't mean that your mortgage goes negative, but that is the end point of that logic. And that's where it seems so squirrelly. Why wouldn't I then just borrow 100 billion dollars, keep it for a week in a warehouse, pray that it doesn't catch fire or get vandalized, then pay it back and live off the negative interest?

Like I say, it just kind of boggle my mind.

littleman

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Re: ECB cuts key rate for first time since 2016
« Reply #7 on: September 15, 2019, 10:39:37 AM »
Well, it is a desperate move to stimulate the economy.  I really hope the fed can resist this stupidity.


Torben

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Re: ECB cuts key rate for first time since 2016
« Reply #8 on: September 16, 2019, 08:16:50 AM »
> I realize that just because the overnight rate from a central bank goes negative, that doesn't mean that your mortgage goes negative, but that is the end point of that logic. And that's where it seems so squirrelly.

That is the reality in Denmark. We can get a 10 year mortage with negative interest but then you have to pay fees.

ergophobe

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Re: ECB cuts key rate for first time since 2016
« Reply #9 on: September 16, 2019, 04:14:50 PM »
fees.

I remember you or Raz saying that before. So that's what keeps you from pulling my trick. I can't imagine it getting to the point where I could pull out a huge loan, put cash in a vault in my house, and pay it back next month for a huge profit. In order to keep that from happening, I imagine banks will introduce additional friction into the process so that they can capture the heat.