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View Full Version : First sign of DEFLATION?????


er340790
18th Dec 2014, 15:46
Donkeys' years ago, I studied Economics. This was just after Mrs. T cranked interest-rates sky-high to choke off the late 1970s inflation with Milton Friedman's 'Monetarist' approach. Reagan did the same in the States.

I distinctly remember at that time that along with the Supply & Demand fundamentals, another one was that prices, or interest rates (= the price of money) could NEVER go negative - because no sane person would ever pay a bank in order to lend their own money TO the bank!!!!!

It seems, it was wrong. Well, not wrong per se, but a clear indicator of the insane times we live in since the bank-induced crises of 2008.

The Bank of Switzerland Rate is now MINUS 0.25%. :eek: :\ :\ :} :E :{

You want to put your money with us?????? IT'S GONNA COST YOU!!!!!!!!

I'm no expert, but I am saying that something, somewhere is broken. Badly broken. :8

OFSO
18th Dec 2014, 15:51
because no sane person would ever pay a bank in order to lend their own money TO the bank!!!!!


For some years now there have been banks which pay no interest or such low interest that their maintenance fees represent a depreciation of your capital. Which, however, is kept private from prying eyes.

G&T ice n slice
18th Dec 2014, 15:55
I believe the Swiss have always done this to foreigners (i.e. non-resident, non-Swiss holding CHF-denominated secret bank accounts) the actual "negative" rate is somehow linked to the exchange rate of the CHF to a bundle of currencies. In times of turmoil very large inflows of actual cash means that the CHF appreciates rapidly and this of course means that CHF denominated exports become rapidly uncompetitive pricewise in international markets.

So the Swiss take a very negative view of sudden large inflows and make it very unappealing to lodge cash with them.

of course, a bag marked "swag" hidden in a deposit box is somewhat different.

bnt
18th Dec 2014, 15:59
I don't recall anyone knowledgeable saying that a negative interest rate could never happen, but it's definitely unlikely. Bloomberg has some background (http://www.bloombergview.com/quicktake/negative-interest-rates) on this latest move, how it came to be and what it means. My "plain English" interpretation is that there is now a market for "parking" your money at a slight loss, when everything else is looking too risky.

In theory, it should encourage retail banks to lend their money out for profit, rather than sit on it. Will the bank lose more overall, by lending, because some of their borrowers default? In other words: it's a reflection of the state of the general economy, if a bank can lose less through a negative interest rate, instead of lending money out.

er340790
18th Dec 2014, 16:11
Actually, I guess the next 'sign' will be when the current 48% drop in oil prices fully impacts the headline RPI/CPI % and turns that negative.

With RPI under 2%, that has to be a statistical certainty, I'd say.

Mechta
18th Dec 2014, 16:14
There is probably a large influx of Russian money in to Swiss and other banks, and with noone to lend it to, the banks need to charge someone for their trouble, so they charge the depositor.

Shaggy Sheep Driver
18th Dec 2014, 16:23
It wasn't all that long ago that UK clearing banks charged customers for maintaining current accounts. You paid the bank to keep your money there, and to enjoy such services as provision of a cheque book.

It took the invasion of the personal banking space by newcomers in the form of former Building Societies entering the market and paying interest on positive current account bank balances to break up that cosy cartel.

ricardian
18th Dec 2014, 16:29
I remember the times when you had to pay for a cheque

ian16th
18th Dec 2014, 16:43
I remember the times when you had to pay for a cheque

There used to be a 2d Tax/Stamp Duty that was paid to the bank.

Lonewolf_50
18th Dec 2014, 17:11
Donkeys' years ago, I studied Economics. This was just after Mrs. T cranked interest-rates sky-high to choke off the late 1970s inflation with Milton Friedman's 'Monetarist' approach. Reagan did the same in the States.

I distinctly remember at that time that along with the Supply & Demand fundamentals, another one was that prices, or interest rates (= the price of money) could NEVER go negative - because no sane person would ever pay a bank in order to lend their own money TO the bank!!!!!

It seems, it was wrong. Well, not wrong per se, but a clear indicator of the insane times we live in since the bank-induced crises of 2008.

The Bank of Switzerland Rate is now MINUS 0.25%. :eek: :\ :\ :} :E :{
Hi.
Back when I was a young adult, there was a monthly fee to have open a checking account at my bank, in Virginia. That had been true for DECADES in this country. Free checking became all the rage later on in the decades of the 80's. I think it was a ripple effect of some of the bank deregulation of the time. Maybe you need to examine your economics history a bit more closely.

As to savings accounts, you can shop around for interest rates. Nobody is going to put their money in a savings account that costs them, right? They'll find another bank.
I'm no expert, but I am saying that something, somewhere is broken. Badly broken. :8
About that we agree, but this little detail isn't what's broken.

airship
18th Dec 2014, 17:23
Oh for goodness' sake er340790! According to the BBC here (http://www.bbc.com/news/business-30528404): The Bank is imposing a rate of minus 0.25% on "sight deposits" - a form of instant access account - of more than 10m Swiss francs ($9.77m).

Please do excuse me for drawing your attention to the point that this only applies to deposits of over USD $9.7 million...?! Ditto, in case everyone else here also keeps similar amounts of petty cash handy...?! :p

PS. Unless I'm much mistaken, the ECB (http://en.wikipedia.org/wiki/European_Central_Bank) also had (or still has) a similar policy of a negative interest rate for member banks 'parking' their funds. Apparently to encourage more inter-bank lending etc....

ExXB
18th Dec 2014, 18:39
The Swiss are doing this for reasons different from the ECB. The later wants to encourage banks to lend their money out, rather than just parking it at Central banks. The Swiss are trying to keep the value of the franc at 1.2 to the euro (it's biggest trading partner).

World events have been driving demand for the "safe" franc, increasing its value vis-a-vis the euro.

And the days of numbered secret accounts are gone forever. Every bank customer is known to the bank.

airship
18th Dec 2014, 19:15
Every bank customer is known to the bank. Oh I don't think so.

Everytime I contact a Swiss bank, saying: "I'm certain that some long-forgotten relative or other unknown benefactor simply must have left airship a substantial sum in (probably) a numbered account (or large safety deposit-box stored in the vault)...!", they inevitably plead ignorance. And I'm not even Jewish. Or have any connection with African dictators or despots etc., at least none that I'm aware of...?!

I'm sure that the banks are waiting for me to show up "in person". That way, they can send me off to one of those government-run farms for orphans and the very poor (though they're not supposed to exist anymore)... :p

bnt
18th Dec 2014, 19:56
Oh for goodness' sake er340790! According to the BBC here (http://www.bbc.com/news/business-30528404):

Please do excuse me for drawing your attention to the point that this only applies to deposits of over USD $9.7 million...?! Ditto, in case everyone else here also keeps similar amounts of petty cash handy...?! :p

PS. Unless I'm much mistaken, the ECB (http://en.wikipedia.org/wiki/European_Central_Bank) also had (or still has) a similar policy of a negative interest rate for member banks 'parking' their funds. Apparently to encourage more inter-bank lending etc....
It's the Swiss Central Bank we're talking about here. They don't deal with "retail" customers like us, their clients are other Swiss banks. Who could indeed have that much petty cash lying around in-between trades, need somewhere to park it, then grab it again for the next trade.

ricardian
18th Dec 2014, 20:02
When I opened my first bank account in 1968 I had to ask my Flight Commander (I was but a humble 25 yr old Corporal) to write a letter to Lloyds assuring the bank manager that I was a person who was fit to hold a bank account. You couldn't just walk in the bank and open an account (but I guess if you walked in and wanted to deposit a nice large cheque it would be OK).
And the bank manager was helpful, even if you didn't think so at the time.

rgbrock1
18th Dec 2014, 20:19
I thought deflation was when your rubber doll..... :E

Never mind.

wings folded
18th Dec 2014, 20:24
When it is you, not the doll...

I suppose I have said enough.

airship
18th Dec 2014, 22:08
The dolls of which you speak: nowadays, they're more likely to be made of closed-cell foam encased in a silicone outer-skin or summat (or so I'm informed)...

Get with it rgb!

I've probably said too much. And never mind.

PS. Basil, perhaps you misread my post? Whatever, if speaking Yiddish is the key to unlocking a few 10s / 100s / millions of funds which are due to me, I'd certainly give that a go, without any embarassment or malice afore-thought. Alas, "Oy vey" is the max. extent of my knowledge, but I'm willing to take lessons. How about 30% of whatever I get out of the Swiss bank - fair enough...?! :)

mixture
18th Dec 2014, 23:50
er340790,

You've clearly been living with your head in the sand because eurozone ECB went that way long before the Swiss.

Infact, as a result, the large customer-facing banks are now starting to charge their larger customers interest for keeping Euros on deposit !

As for deflation, look at the EUR 10-year benchmark and make your own mind up.... :eek:

But the thing to watch is not the "macro" story but the "micro" one....that's more than likely where the risk of misallocation of capital will come from.

ExXB
19th Dec 2014, 11:00
This negative interest (aka a fee) is what the national bank is charging Swiss banks. The large banks have all issued statements that they will not charge a similar fee for their clients.

I bank with the UBS and they pay 0.25% interest on current accounts.