
Denmark's Jyske Bank lowers its negative rates on deposits - klauslovgreen
https://www.reuters.com/article/denmark-rates-jyske-bank/update-1-denmarks-jyske-bank-lowers-its-negative-rates-on-deposits-idUSL5N26B1AA
======
sword_smith
When people borrow money for a house, they only consider the monthly payments
for the mortgage and not the absolute amount of money they are borrowing. This
means that low interest rates are the main reason behind surging house prices
and is why people have to spend decades paying back loans and being vulnerable
to a drop in house prices. It creates too much debt in society and generally
makes the economy more fragile than it has to be. The low interest rates may
seem like a helping hand to house buyers but it is in fact the opposite: a
transfer of wealth to house owners from people seeking to enter the market, a
transfer of wealth from the younger generations to the boomers. This must end
if we want to avoid a repeat of the 2008 crisis. But with the current levels
of government debt, it's hard to see a political solution.

~~~
paulpauper
>When people borrow money for a house, they only consider the monthly payments
for the mortgage and not the absolute amount of money they are borrowing.

That is how borrowing works. Otherwise the lender would not make a profit.

>It creates too much debt in society and generally makes the economy more
fragile than it has to be.

and yet the post-2009 economic expansion is the longest ever, and this is in
spite of all the anxieties over tariffs and trade wards and the fed raising
rates.

> The low interest rates may seem like a helping hand to house buyers but it
> is in fact the opposite: a transfer of wealth from house owners to people
> seeking to enter the market, a transfer of wealth from the younger
> generations to the boomers.

Plenty of millennials own homes. There are tons of examples on Reddit of
people in their 20s and 30s with homes and investments. Low rates makes it
easier to get a mortgage and compound wealth by owning a home. Rather than a
wealth transfer ,which suggests a zero sum game, more wealth is being created.

~~~
ta1234567890
> and yet the post-2009 economic expansion is the longest ever, and this is in
> spite of all the anxieties over tariffs and trade wards and the fed raising
> rates.

A crisis is not an economic fact that magically happens when some
predetermined values for some set of indicators are reached.

A crisis is a mix of two things: 1) a big financial/economic issue that
affects an important sector of the economy, 2) widespread panic.

There are already multiple candidates for 1), but what hasn't happened is 2).

Why? That's anybody's guess.

My guess is Trump.

For people to panic, there needs to be sustained media coverage and focus. But
now whatever Trump says is more important than anything else for the media.

If you look at the media since Trump became president, the most important
issues have been all stuff related to his government, and whenever the media
has focused on anything for too long, he's come out with some other thing that
the media shifts their attention to.

So we've had lots of small panics, which by now have mostly desensitized the
public.

If someone like Trump can continuously interrupt the media, they effectively
control it through disruption, and then the media cannot focus for long enough
on anything for people to fully panic and cause a full blown crisis.

~~~
roenxi
Actually 'crisis' just means 'decisive change is impending'. There doesn't
have to be panic.

Coordinated or systemic movement of money in any form can be a crisis. There
doesn't _have_ to be reporting or emotion for the situation to spiral out of
control. That is to say, the panic can follow the crisis.

~~~
ta1234567890
> That is to say, the panic can follow the crisis.

You are technically correct. Maybe I should have used the word recession
instead.

What I mean is that a lot (most?) of the damage in a crisis is actuallly done
by big masses of people reacting to it rather than the crisis itself.

Think about bank runs, widespread stock shorting and selling, people not
investing because of uncertainty, lenders abruptly calling their loans, etc.

------
lawn
> In August, Jyske became the first to offer a negative rate on a home loan,
> in effect paying customers 0.5% to borrow money for 10 years.

Surely this can't end well?

Here in Sweden the house prices are so high in cities it's almost impossible
for young people to get a house, sometimes even an apartment. We've been
waiting for the housing bubble to pop a while, but how long must we wait? The
longer we do the worse it'll be.

~~~
detritus
> We've been waiting for the housing bubble to pop a while, but how long must
> we wait? The longer we do the worse it'll be.

As someone who moved to London far too long ago and has expected some
miraculous drop in house prices every time the economy catches a sniffle -
stop waiting. It'll never happen. I mean, it may do, but to all practical
degrees, house prices will creep upwards forever.

There's no 'right time' to get on the ladder, other than when you can actually
afford.

Now all I hope is that I get out of London before I get too bitter about not
having simply bit the bullet a decade or so ago.

~~~
lawn
Just as an anecdote we moved away. Our friends moves to the city and buy
houses for 10x what we bought ours for, and smaller ones too.

Of course it's not possible for everyone and there are sacrifices with living
in a small community as we do.

------
roenxi
On the one hand this sounds eminently stupid. On the other hand, it means
there is some sort of de-linking of money and time.

Negative interest rates roughly imply that Denmark crowns have no ability to
preserve wealth over time. If anyone gets paid in crowns they should attempt
to spend them immediately and buy something durable.

It is hard to see how this is an improvement over letting money hold value
over time. Now there will be more competition over scarce real resources
instead of wealthy savers holding a "fake resource" of cash in a bank account.
And anyone who doesn't understand interest rates might lost out from
confusion.

~~~
nabla9
You get it it backwards. Denmark is facing deflation, not inflation.

Inflation in Denmark august 2019 - july 2019 was -0.39%. That is, the value of
money is increasing.

~~~
roenxi
[https://tradingeconomics.com/denmark/inflation-
cpi](https://tradingeconomics.com/denmark/inflation-cpi) says 0.5% inflation
with steady increase in the money supply (
[https://tradingeconomics.com/denmark/money-
supply-m2](https://tradingeconomics.com/denmark/money-supply-m2) ). Do you
have a better source?

~~~
nabla9
[https://www.inflation.eu/inflation-rates/denmark/current-
cpi...](https://www.inflation.eu/inflation-rates/denmark/current-cpi-
inflation-denmark.aspx)

~~~
roenxi
The negatives look to be monthly seasonally-unadjusted. I wouldn't read too
much in to them. Annual numbers are still in positive territory. Denmark has
had negative rates for more than a year.

------
vasco
Other than spreading it around multiple banks, the natural outcome of this
will be increased investment, most likely in real estate at one end of the
spectrum and on the other things like money market funds, treasury bonds, and
to a lesser extent index tracker style ETFs.

If the trend spreads across other countries, and if you believe this is a
trend that is hard to revert (falling interest rates), I'd say we're in for a
few more years of the stock market climbing with bigger and bigger valuations
at crazier revenue multiples. Even though lately it seems like everyone is
predicting that a crash is right around the corner, I don't think it's likely
without a big external event happening to disturb this trend. Either some
cyber / regular war or some other event nobody is forseeing.

The 2008 big short dude recently predicted that the inflows of money into ETFs
by a lot of very passive investors is gonna create a situation where big
valuations are based on nothing other than people not having any other place
to put their savings, but I think like in 2008, his prediction is very early
again.

We'll see, interesting times ahead.

------
JamisonM
It strikes me that with an absurdly low debt-to-gdp ratio of 34% and negative
interest rates maybe the Danish government should invest more money in their
economy. Maybe leverage the market to build the enormous amount of green
infrastructure they and the world needs, the returns don't need to be that
high to pay off.

~~~
dev_dull
Denmark has high oil and gas reserves, which partly is why their debt-to-gdp
is so low. Why would they benefit in green energy infrastructure?

~~~
detaro
"high reserves" that according to Denmarks government after 2032 will not be
able to cover Denmarks own oil consumption and likely be exhausted before
2050.

Every barrel of oil they don't use now either delays that or brings them money
to invest, and using the income now to prep for later seems like a sane
strategy.

------
gridlockd
Soon enough we may find out that too much is invested into the expectation
that interest rates will go down indefinitely.

When inflation finally strikes, there will be no tools left to fight it.
Getting deeply into debt and buying as many assets as you can would then be
the right thing to do.

Obviously, this is not financial advice.

~~~
JamisonM
Isn't the primary tool to fight inflation with an increase in interest rates?
And if interest rates are negative doesn't that mean that there is lots of
room to adjust them?

It strikes me that the problem is that the tools to fight _deflation_ are
inadequate.

How much growth and prosperity has been sacrificed to avoid the threat of
inflation that never arose?

~~~
gridlockd
> And if interest rates are negative doesn't that mean that there is lots of
> room to adjust them?

No, because the economy has already adapted to these low interest rates. All
the money that was put into high-risk instruments at relatively low yields
will be desperate to move into these "low risk" bonds, which causes a huge
selloff, which will be especially disastrous to those who bought in on margin.

Furthermore, those entities that have gotten used to financing old debt with
ever cheaper new debt will have trouble finding new affordable debt.

> It strikes me that the problem is that the tools to fight deflation are
> inadequate.

What deflation? You mean the "deflation" of CPI staying below 2%? What about
asset price inflation?

> How much growth and prosperity has been sacrificed to avoid the threat of
> inflation that never arose?

What real economic growth has been achieved by this unprecedented money-
creation spree? Rising prices do not equal prosperity.

What about Japan, or the Eurozone? They have even lower interest rates and
they're once again stagnating. You really believe if money was even cheaper,
even more growth could be achieved?

We do have massive asset price inflation. We also have significant service-
sector and rent price inflation. The CPI is only stable because productivity
improvements have kept prices at bay for many consumer goods:

[https://perspectives.pictet.com/wp-
content/uploads/2015/04/U...](https://perspectives.pictet.com/wp-
content/uploads/2015/04/US_Inflation_21.04.2015_2.jpg)

However, many of these consumer goods aren't made in the US. The dollar has
been strong because, globally speaking, interest rates on it are high. If the
US went back to QE and zero-interest, you could easily see a 25% drop in the
value of the dollar, which immediately shows up as inflation for imported
goods.

~~~
JamisonM
The argument that the central banks couldn't fight inflation by raising rates
is sort of undermined by the fact that central banks have raised rates in very
recent history and there was no catastrophe, in 2011 the ECB raised rates 1/2%
and all the Eurozone got was a stunted recovery. The US Fed had been steadily
raising rates since 2016 and has since admitted that it was a mistake and
reversed course.

The tools to fight deflation/low-inflation are mostly left in the hands of
government spending, which unfortunately governments refuse to do for
political reasons, the central bank's tools are limited.

    
    
       What about Japan, or the Eurozone?
    

What about them? The story you are telling is the some one from the 90's about
Japan and it has been wrong so far, at what point is there enough evidence to
prove that Japan was right to keep interest rates low? Furthermore Abenomics
has been largely a success, which is doubling-down on those policies plus
being willing to pile on even more debt, raising an expectation of future
inflation to create investment (not quite exactly but more or less as Krugman
encouraged them to in the 90's).

The Eurozone's problem is clearly austerity in the face of the structural
issues that the single currency creates, as long as the wealthy members are
unwilling to spend and the rules prevent the poorer members from spending they
are caught in a low-demand trap of their own creation.
[https://www.jstor.org/stable/24385696](https://www.jstor.org/stable/24385696)

    
    
      They have even lower interest rates and they're once again stagnating.
      You really believe if money was even cheaper, even more growth could be achieved?
    

I believe that higher rates will hurt them (supported by the evidence from the
2011 ECB & 2015 Fed rate increases and the study of their consequences) and,
as I stated in my original post they, like the Danish, should be spending
money on things they need to stimulate their economy and invest in the future.

If you can borrow money at negative interest rates and build assets of any
future value then you should do it and make citizens' lives better now and in
the future.

~~~
gridlockd
> The argument that the central banks couldn't fight inflation by raising
> rates is sort of undermined by the fact that central banks have raised rates
> in very recent history and there was no catastrophe, in 2011 the ECB raised
> rates 1/2% and all the Eurozone got was a stunted recovery.

They raised them very briefly for a couple of months. And half a percent?
That's basically background noise. In the past, to fight inflation, rates went
up as high as fifteen percent.

> The US Fed had been steadily raising rates since 2016 and has since admitted
> that it was a mistake and reversed course.

They've reversed course in 2018 because the markets were tanking in 2018. The
Fed never admitted making any mistakes, as far as I know.

> "Keynesianism totally works!" (paraphrased)

Remember, Keynesianism says you boost the economy short term to get it up to
speed, then throttle it when times are good. Keynesianism is about pulling
future demand into the present. Except times never get good enough for
politicians to put in the throttle.

So you end up with a pile of debt that can't be serviced in any other way than
inflation, and we haven't seen the end of that yet.

Do you believe that situation is better for the owning class, who bought up
all the assets in exchange for cheap debt, or the serving class, who have to
rent those assets, whose wages are losing more and more purchasing power?

> If you can borrow money at negative interest rates and build assets of any
> future value then you should do it and make citizens' lives better now and
> in the future.

That's not what's happening. You borrow money so you can _own_ more of the
future, and charge citizens for it.

~~~
JamisonM
Setting economic policy based on fighting 1970's inflation battles instead of
accepting the evidence that the US economy is finally near or at full
employment by sustaining a low interest rate environment contrary to evidence
and experience. Full employment is good for workers and less-good for asset
owners.

Governments can borrow money to build infrastructure that make people's lives
better, I don't know how you can dispute that this policy option exists or say
that it "doesn't work that way" when you know, governments do that stuff all
the time. When in doubt, and you have low interest rates, build a sewage
treatment plant!

~~~
gridlockd
> Setting economic policy based on fighting 1970's inflation battles instead
> of accepting the evidence that the US economy is finally near or at full
> employment by sustaining a low interest rate environment contrary to
> evidence and experience. Full employment is good for workers and less-good
> for asset owners.

You can always point to numbers that are supposedly good (such as questionable
government-issued employment statistics) and I can always point to numbers
that are bad (the PMI, the Russell 2000, the unprecedented levels of sovereign
and individual debt).

If the economy really was that great now for people on main street, why is
Trump _losing_ approval among the people that voted for him to fix this exact
issue?

> Governments can borrow money to build infrastructure that make people's
> lives better, I don't know how you can dispute that this policy option
> exists or say that it "doesn't work that way" when you know, governments do
> that stuff all the time. When in doubt, and you have low interest rates,
> build a sewage treatment plant!

I'm not against emergency measures by any means, but the tendency with
governments is to make the emergency measure of today the status quo of
tomorrow. This idea that you can spend yourself wealthy at the national level
is just as flawed as the idea of trickle-down-economics.

Sure, in the short term, debt-financed government programs can stimulate the
economy, but that debt has to be paid off. You have moved demand from the
future into the present. It will be _missing_ from the future, because money
spent on debt service cannot be spent on anything else. That is unless you
_don 't_ pay off the debt, or you erase it through inflation, in which case
that is still money missing from _someone 's_ pocket, and it's not just
foreign pockets - most US debt is internal. It's also not going to be the rich
guys' pockets, because they saw it all coming and bought up all the hard
assets already.

~~~
JamisonM
IDK, the closest approximation of full employment we've seen since the second
world war has been the product of low interest rates.

Conversely fretting about debt in the way you describe, with a concern about
the value of present investment in physical infrastructure for the future, has
proven over and over again to be unfounded (tax cuts are otherwise clearly a
case of leaving money on the table now that will not benefit the future).
You'll see.

~~~
gridlockd
> Conversely fretting about debt in the way you describe, with a concern about
> the value of present investment in physical infrastructure for the future,
> has proven over and over again to be unfounded

Not true. If you want to see that idea of economic policy fail, look at Turkey
under Erdogan:

[https://en.wikipedia.org/wiki/Turkish_currency_and_debt_cris...](https://en.wikipedia.org/wiki/Turkish_currency_and_debt_crisis,_2018)

The reason that Erdogan couldn't pull off this con for as long as the US is
that he can't print Dollars or Euros. However, even those "reserve currencies"
eventually can lose investor faith. You're just speculating that they never
will.

~~~
JamisonM
Yeah, don't borrow in someone else's currency is a pretty important point, the
10 year Danish Krone Bond is at a -0.48%. If you have to borrow in someone
else's currency then you are absolutely /not/ the same position that Denmark
is right now.

~~~
gridlockd
The reason Turkey has to borrow in someone else's currency is that their own
currency doesn't have the credibility it needs to support low interest rates,
so if they want to borrow at affordable rates to boost their economy, they
need to use foreign currency.

If the US keeps up the deficit spending, it will either need to pay a huge
amount of money on debt service, or it needs to monetize its debt - which
means credibility will be lost and new debt will be more expensive.

Either way, it's not a free lunch.

~~~
JamisonM
> Either way, it's not a free lunch.

Yes there is no free lunch, in particular for any country that is in a
completely different circumstance than the country we are discussing.

------
pmontra
Aren't negative interest rates equivalent to inflation? Both lower the value
of savings.

2% inflation and 1% interest rate on savings is the same as 0% inflation and
-1% interest rate.

Even getting a -1% mortgage creates inflation, because who sells houses can
ask somewhat higher prices and buyers will be able to pay them.

------
jnordwick
This is a really bad articles. The short term rates are not driving this. They
don't drive long term rates because be short term rates are largely driven by
technical considerations (eg the recent fed interventions in the overnight
markets because of liquidity issues).

I spoke to someone about this a while ago. These loans are often required by
the government to message certain targets, and are meet positive for the banks
because of other regulatory issues that may exist. These negative rates home
loans wouldn't exist without some regulation various regulation and government
incentives.

------
pcurve
Why does the concept of paying people to borrow money sound eerily familiar.

------
benj111
If I lower the interest rate it goes down, if I lower a negative rate it goes
up?

Either way, I was unsure which way rates had moved just from reading the
title.

~~~
levthedev
The interest rate on deposits was previously -0.6%, and now is -0.75%. Hope
that clarifies if you were unsure.

------
annamargot
In a world with crypto currencies, would a frugal Dane be wise to put their
cash into a cryptocurrency?

I realize crypto is still seen as risky, however if it takes hold and overall
market volatility stabilizes, how would easy access to borderless liquid
digital assets affect the neg interest rate strategy?

Edit: remove mention of specific cryptocurrency in an attempt to shift focus
to broader strategy.

~~~
levthedev
What is the advantage to buying Tether with Krones instead of just converting
them to USD? I think people jump to crypto as a solution when oftentimes the
financial markets have already had the same solution for hundreds of years (in
this case, foreign exchange).

------
klauslovgreen
What’s next?

~~~
badlogic
A massive down turn.

~~~
Bombthecat
In five to six years...

