
Germany in Uproar as Negative Rates Threaten Saving Obsession - adventured
https://www.bloomberg.com/news/articles/2019-08-25/germany-in-uproar-as-negative-rates-threaten-saving-obsession
======
neaden
"Negative rates, which mean deposits decline over time rather than increase,
“would be bad for all savers,” said Juergen Dengel, a 40-year-old civil
servant from Bonn. If negative rates were introduced at his bank, he would
consider withdrawing his money and using it to build a home -- even if that
meant going into debt." \- This seems like the goal of negative interest
rates.

~~~
mruts
Then buy the US risk free rate instead? Or get some nice equity premiums if
you want. I seriously have a hard time understanding logic like this. Who is
actually saving money in a savings account? There’s literally only one reason
why you would keep money in a savings account: For FDIC (or equivalent)
protection. But if that was the sticking point, then US T-notes are even
better and they don’t have a 250k limit.

Maybe this guy doesn’t know anything about finance and doesn’t understand? I’m
confused.

Moreover, this is exactly what rate cuts are for: to stimulate the velocity of
money and encourage investment.

Europeans in general are so risk adverse that they make irrational financial
decisions. As EMH posites, you get a return commensurate to your risk: without
bearing risk, there cannot be any return.

~~~
kgwgk
Juergen from Bonn is not interested in buying US Treasuries for the same
reason that Joe from Baltimore is not interested in buying Mexican government
bonds even though they yield 7% rather than 1.5%.

~~~
mruts
You’re comparing Mexican bonds with US T-notes? US 3-month treasuries are
_the_ risk-free for the entire world. Every investor and every country in the
world (besides maybe North Korea or something) hold them in massive
quantities.

~~~
badpun
They're not risk free, because there's always the currency risk. 20% of my
portfolio is US govt bonds, but that's mostly to hedge against the fall of my
country's currency.

~~~
mruts
You’re right, nothing is risk free. In finance though, the three month US
Treasury bill yield is considered the risk-free rate. The only reason why this
matters is that the risk-free rate is built into almost all financial
equations and models.

------
TeMPOraL
A lot of comments here are saying that this is good, and/or one is not
entitled to a non-negative return rate on a bank account. Ok, so as an
individual, how am I supposed to store money? Under mattress? Or should I
embrace the new way of spending everything I earn immediately, possibly by
turning my life into a portfolio of subscriptions, and paper over all
unexpected spendings (illness, car breaking down, family issues) with
insurance? How are low-to-middle-class people supposed to improve their
financial situation in this reality?

~~~
throw0101a
The first question to ask it:

* What are you saving money for?

Retirement? Children(s)'s education? House downpayment? Vacation?
New/replacement car? The purpose of the money that you are saving determines
what you should do.

The rates that this article is talking about is bank savings, so if you're
talking about retirement or child education, that is usually many years away.
For that money you will need to put it into a portfolio of stocks and bonds,
because if you don't inflation will eat away at it over time.

If you're talking about saving for next year's vacation, then a savings
account (even negative rate) is fine, because over the course of a year you're
not going to lose much.

If it's in the time frame of 2-5 years, then a term deposit will be fine:

* [https://en.wikipedia.org/wiki/Time_deposit](https://en.wikipedia.org/wiki/Time_deposit)

It's locked in, so by promising to not touch it, the financial institution
gives you a higher rate. Of course if (e.g.) your car breaks down, and you do
have grab it, you forgo any interest, but the emergency use is probably a
higher interest; if your car does not break down, you earn higher interest
than a simple savings account.

And yes: after you've saved an emergency fund, funded your vacation plans,
funded any replacement vehicles or other large expenses (new roof/HVAC for
your home), you _should_ spend whatever is rest.

You can't take it with you when you die, so once you've planned for certain
contingencies, you might as well spend the money on improving your happiness
and enjoyment of life.

~~~
majewsky
> You can't take it with you when you die, so once you've planned for certain
> contingencies, you might as well spend the money on improving your happiness
> and enjoyment of life.

I am a German, and my visceral reaction to this is: "But what if something
unexpected comes up!?"

You may roll your eyes at this, but (I believe that) this is a mindset shared
by the majority of Germans.

~~~
pm90
Suggested solutions: insurance and or social security benefits, UBI.

Some kind of social safety net would, ironically enough, allow the most
efficient use of capital by allowing citizens to invest all their extra cash
into the economic machine.

~~~
wincy
I’d be most concerned about governmental instability. In that case no amount
of UBI promises would protect you, but a suitcase of gold and a plane ticket
would. At least, 10 kilos or so would let you set up pretty nicely somewhere
else.

------
mikeash
I like getting interest on my savings as much as anyone, but it is kind of
weird how we just expect the price of storing money to be negative. No other
storage service works this way. I can’t put a bunch of furniture in a
warehouse and not only pay nothing, but receive a percentage of the value each
month.

I understand why it often works this way for money, but I don’t see why this
must be the natural order of things. The price of storing money in a bank will
be the underlying cost of doing so, minus the proceeds the bank can make from
your money, plus some profit margin. Nothing says this sum must be a positive
number.

~~~
abernard1
'No other storage service works this way. I can’t put a bunch of furniture in
a warehouse and not only pay nothing, but receive a percentage of the value
each month.'

The distinction is that your savings in a "storage" scenario are yours
exclusively. That is not how it actually works. Banks lend out your "stored
furniture" to get a return. Due to fractional reserve lending and the
fungibility of currency, the illusion of you being able to receive your stored
furniture back is preserved.

But there is never actually a scenario where there are truly idle resources--
capital is always utilized at some ratio, and that ratio is independent of
consumer behavior. The bank is investing on behalf of their customers.

As banks can only invest based upon the deposits of their customers, I think
it is actually extremely unreasonable for customers to have to pay for the
privilege in the form of a negative interest rate. That's not "natural"
either. Guaranteed checked deposits is the only reason that this swindle can
occur.

~~~
JumpCrisscross
> _it is actually extremely unreasonable for customers to have to pay for the
> privilege in the form of a negative interest rate_

You’re paying for access to a checking account, an electronic payment
mechanism.

Savings should be invested, not stored with banks. That’s the nudge ZIRP and
negative rates provide. Forcing investment decisions into the hands of the
savers over banks’ lending managers. Decentralising the economy’s pool of
investing decision makers.

~~~
abernard1
I understand the nudge, but my comment was qualified by a statement that is
essentially "savers are already joint investors in the operations of a bank."
On principle, receiving a guaranteed negative return for providing an investor
your own capital is very unnatural.

With regard to fees: the only reason banks charge them is due to the fact they
believe that the possible returns from low income customers will never match
their cut of the investment. The fact that this interest rate also applies to
high income customers exposes the "what about fees" argument. This is about
incentivizing moving capital out of the safer investments that bank make
(homes, relatively light personal loans, modest business loans) into equity
markets. As true "savings" rates in the form of completely unallocated capital
is low, my guess is this is pushing on a string.

~~~
JumpCrisscross
> _savers are already joint investors in the operations of a bank_

And highly privileged ones. First in line. Guaranteed by the government.

If savers want to be _pari passu_ with the bank’s capital, they can buy bank
bonds and stock. Those yield well, even in the EU.

------
Gys
What a world we live in: spending all you money and maximizing your debts is
the new credo. Pay back? Will never happen.

I think 'the Germans' were never a big supporter of keeping the economy
running at all costs. Like the way the ECB operated in the last few years.

Sooner or later there will be a crash. But somehow everyone thinks that will
never ever happen.

EDIT: typo

~~~
benj111
But we're 10 years into this low interest rates/ low inflation environment,
which came about after the last crash.

I don't doubt a crash/recession will come eventually, it doesn't seem obvious
to me that that will take it back to how it was before.

------
pascalxus
Negative rates doesn't change the reality that retirees need to save money. It
just exacerbates the situation.

Negative interest rates could cause even more aggressive saving as people need
to hold on to every last little penny they own. When you know that you're bank
account will have less and less in it in the future, saving even more in the
present day becomes even more important. If I was a retiree in germany right
now, I'd cut as much of my spending to almost nothing and wait for this
ridiculousness (negative interest rates) to stop.

------
IloveHN84
Are actually Germans big savers? Living here for almost 10 years, I've NEVER
found anyone saving money..the majority burn their salary month per month or
burn their short 'savings' in more-than-they-could-afford vacations, like
entire months in US or Australia.

~~~
majewsky
To counter your anecdata with some anecdata of my own, my savings rate right
now is around 48%, as in: I spend 52% of my income. I'm currently implementing
some lifestyle changes that are going to push the savings rate over 50%.

I'm not trying to deliberately pinch pennies. (Well, maybe a little.) I just
happen to live in a way that avoids big spending. I don't have kids, so I
don't need to spend money on that. Because I don't have kids, I don't need a
large house. Therefore I live in an apartment in the city center, which
(besides being convenient) means I don't need a car. And so on.

> the majority burn their salary month per month

I obviously don't know your sample, but out of the people that I know, those
who live paycheck-to-paycheck usually do so because they work in low-wage jobs
that simply don't pay enough to save any money. There surely are outliers that
just don't know how money works, but the majority fail to save because of low-
wage jobs.

~~~
flukus
I'm pretty similar to you, although on the other side of the world in
Australia with the ~50% going into paying off apartment rather than saving
right now (the only debt I've ever taken on) and much of the 50% I do spend is
government sin taxes. But living within your means, not taking on debt
(especially for frivolous things) and saving was instilled by my English
father, I never knew it was a German attitude, just basic financial
responsibility.

That financial responsibility has saved me too, during an unemployed stint I
was living off the extra money I'd put against my apartment. Had I not put the
money away or gone into more debt to buy a bigger apartment I would have lost
it entirely and been back to renting.

The idea of living on credit is insane to me.

~~~
majewsky
I think that my strongest influence in that regard was my grandmother. She was
born in 1937 and experienced WW2 firsthand, and her formative years were spent
in East Germany when society was slowly reconstructing itself after the
devastations of the war.

------
rocqua
How long until banks start investing in vaults and just store millions of
euros in hard cash to avoid negative interest rates?

Is their any regulatory reason against doing this (lets ignore the cost of
securing such cash against physical risks).

~~~
AdrianB1
Why do that? When most money are just bits in some computers why bother
printing it? Go digital, you don't need paper, you save on physical storage.

~~~
rocqua
Because the only way for a European bank to have money as 'bits in some
computers' is with the ECB. And the ECB gives you back less money than you
gave them (negative interest).

Banks can also place money with other banks, but that is lending to other
banks. Besides, this only shifts the problem to another bank, who now has cash
on hand that'll be stored in the ECB if they don't do something else with it.

Besides that, banks can invest cash. But in a low-yield market where all
stable investments give very low, or even negative, interest, that becomes
less attractive.

------
umadon
I think this is the message the investor class is trying to send to ordinary
people: "If we can't find a place to invest at a reasonable rate of return, we
will find a way to loot your bank accounts."

------
tempsy
For your average retail bank customer you’d be lucky to get anything on your
savings as is for the last 10 years. I’m speaking from the US bank
perspective, but I imagine it has been the same or worse in Germany.

The saving grace in the US is the somewhat recent trend of online banks
offering around 2%. I don’t know if other developed countries in the Eurozone
have similar offerings.

------
segmondy
I have been mulling over this for quite a while. What to do if USA one day
enters the negative rate territory. I'm not yet so sure.

Go all into stocks, bonds? Buy real estate, lock up in long term CDs before it
hits zero? I have thought about foreign savings, but without FDIC insurance,
it doesn't even seem to be worth the risk.

What are your plans? bitcoins? gold?

~~~
tunesmith
My allocation model requires a certain percentage in cash. I send most of that
cash towards my mortgage instead. Even a low interest rate mortgage of 3-4%
beats current cash savings rates of 1-2%.

------
lixtra
So as a high earner, what would be a rational thing to do?

German savings rate is about 10%, let’s assume it’s 20% for a high earner.

If she decides to stop saving, she can reduce her workload to 80%. This is
generally easier than it might look like[1].

Because of progressive taxes, she will still earn about 85% of her income, so
she can still save 5%, but rather outside of Europe with its faltering
economy. Especially when more high earners decide to work less and live more.

Luckily few people act rationally.

[1] [https://www.globaladvocaten.com/blog/labour-law-parttime-
wor...](https://www.globaladvocaten.com/blog/labour-law-parttime-work-in-
germany)

~~~
AdrianB1
The biggest problem I find is financing the activities in the extra free time.
Most of my saving capability comes from the fact I have no time to spend what
I get, if I take more vacation and lower pay I am becoming bankrupt very soon,
very fast. Not working and just staying at home because I cannot afford to go
anywhere is not a positive use of my time, I can work and be productive.

~~~
triceratops
> The biggest problem I find is financing the activities in the extra free
> time

Find cheaper hobbies. Video games, library books, walks in parks (city,
regional, national), exercising or playing cheap team sports like soccer or
basketball, local volunteering, playing music - all have a very low cost per
hour. Other hobbies such as woodworking/carpentry, painting or other arts and
crafts, have higher costs but also the possibility of making some money.

If you have more vacation time, you can also choose cheaper but slower modes
of transport or book tickets and accommodation at non-peak times. E.g. you're
not forced to travel around long weekends or Christmas holidays to get a
decent-sized break.

------
marcrosoft
Simply go where savings are better (like US treasuries). The yields will self
correct.

~~~
gumby
The whole point of keeping all that cash in the bank is to avoid risk. Few
people can deal with exchange rate risk.

In fact the EU fiscal crisis came from people basically doing what you said:
putting their euros in Greek and Spanish banks that paid higher interest than
German banks were. They assumed they’d have no exchange rate risk (they
didn’t, except at a macro level) but also assumed they’d have the same bank
regulation and guarantees they had at home. Oops!

~~~
tialaramex
For individual savers they did have the same guarantees. The EU operates a
scheme that requires members to offer some amount of guarantee denominated in
Euros. Brits whose local banks failed were bailed out almost immediately by
the British government, in full - far more than was legally required, but
every individual with an EU account got their legal due eventually. In fact
some of the nasty corner cases were non-EU banks that outsiders would think of
as British but are legally not, based on Man (an island between the mainland
and Ireland) for example. Those had "guarantees" that are worthless because
they're underwritten by a tiny island that can't pay. If London or even Madrid
owes you money they're ultimately good for it. But Douglas (the closest the
Isle of Man has to a city) doesn't have any money, so their guarantee is
worthless.

------
gmueckl
This article picks up a discussion that is largely smoke and mirrors: courts
have already ruled negative rates for private savings illegal under the
current law. So any new law to that effect would be a politixal show only.

------
apexalpha
Same here in NL. An entire generation is growing up with the idea that saving
doesn't earn you anything. Borrow borrow borrow is the credo.

Our entire housing market is fucked thanks to the ECB, pension funds are
cutting pensions because bonds literally don't give you a return anymore. All
assets worldwide have been pumped into record heights.

All this so governments in southern Europe don't drown in their own debt.

If only the countries joining the Euro had agreed to keep deficits and debts
below a certain level....

------
qaq
There are developing nation in need of investment and developed countries with
negative interest rates hmmm ...

------
crb002
This is bad. Germany goes insolvent from malinvestment and we have a global
deep recession on our hands. All their creditors will default because why not
when there is a run on their banks?

------
sdinsn
Isn't that the point? People are saving too much in the consumer economy, so
negative rates encourage people/companies to spend or take on debt to
stimulate the economy.

------
Zenst
Over the decades we have seen in many countries a trend from saving and
responsible spending towards, credit and living on a have no, pay tomorrow.
This of course is not solely down to interests lowering. But the opening up
and diversification along with growth in marketing of financial products and
that in itself has been driven by the increased marketing and fashion
conscious mentality of certain consumer products.

Is this a good thing or a bad thing. Hard to say, but certainly when your
populus is more exposed on credit and less backed up with saving and secured
assets, any blips in the market can and will explode into financial meltdown
with more dominos in the stack to fall down in a greater knock-on effect.

What we also need to know is that in the past when things got bad, governments
would raise interest rates, that would have a negative knock-on effect. So the
approach switched towards lowering those interest rates, more competition in
financial markets and with that growth, we saw the rise in marketing and
credit accessibility and the market competed with itself for your not only the
money you have today, but more so towards the money you will have tomorrow.

There is only so far you can cut interest rates, and had you asked anybody a
few decades ago about the possibility of negative interest rates, they would
of laughed so much that your ears would bleed. Today, such things are a
reality.

What I wonder is that Quantitative Easing ( fancy way of devaluing your
currency and in effect currency manipulation that is accepted...these days) is
the elephant in the room. If we never had such things, would we of ever seen
negative interest rates?

What's more, we are now even seeing Government bonds with negative interest
rates. How far will they go and with all that.

Will we see the bartering system becoming more fashionable?

Finally, is saving now classed as an obsession! Really, are we seriously at
that stage in in fiscal devolution that we all seem flummoxed in a few decades
time when nobody bothered to have a pension plan? Finance is about balance,
sure have fun, have credit, but equally, have some savings. This drive to now
demonise savings, just seems irrisponsible.

But do remember, savings can be in many forms, assets can be a form of
savings, gold, art, shares in companies even. Some have larger risk, some more
stable and with any financial blip/crisis - the same old things do better like
gold. Which is also an indicator of financial crisis's, and it has been
trending up recently, in a way indicative of a financial crash. Now with that
in mind, and finance does have some smart people who not only see that and
more, I wonder - are negative interest rates the new trick to staive of a
financial market heading for a crash? Maybe, but it gets down to enough people
buying into it. Now with government bonds, that may well happen as many
pension pots have rules that force them to have a certain percentage of such
bonds. As they have always been classed as stable. Times change, rules change
and if those pension pots change there safe long term bets into another
approach, things could become very interesting indeed.

I do hope that this new trick in interest rates pans out, but it is hard not
to be blown away by the complexities at play the further and deeper you look
into it.

------
jakeogh
"Obsession" ay? The old guard newspapers make more sense if one notes their
framing often tends towards increasing dependence on central power structures.

------
Despegar
There's nothing I enjoy more than the plight of the German Saver, who's
obsession with "fiscal responsibility" has led to shitty austerity politics
all across the EU (to be fair some other northern European countries like
Netherlands also share the same view) and depressed growth for the poorer
southern European countries.

Germany has benefited most of all from the unfinished project of the EU.
Without becoming a federal union like the US, but having a common currency,
Germany's exports have been artificially cheaper and thus more competitive for
over 20 years.

This is the natural outcome from the obsession with running fiscal surpluses.
Now Germany is on the brink of recession and they're finally starting to make
some noises about fiscal spending, but the politics will likely limit it to
modest deficits than anything transformational. Enjoy the negative rates.

~~~
Ancalagon
Jesus, this comment sounds so bitter. You’re complaining that the average
person in Germany wants to save money and be fiscally responsible? Coming from
my viewpoint (in the US), we could definitely use more of that.

~~~
Despegar
A poor economics understanding has led people to believe that saving is
somehow a virtue. Government budgets aren't the same as household budgets. The
former is what I'm talking about. I don't care if any individual wants to save
his/her money and consume nothing.

~~~
tonyedgecombe
Yet the PIGSS have been struggling under a mountain of debt.

Government budgets might not be the same as household budgets but you can’t
borrow endlessly.

~~~
ebalit
PIGSS is the european version of "fly-over states", a derogatory term that
should be avoided.

States or nations that are not doing has well economically deserve respect and
help or we should stop calling ourselves a Union.

~~~
barry-cotter
This is ridiculous. Flyover states is about contempt for people and a culture,
PIIGS is about poor economic and financial decision making. Germans, Danes and
Czechs don’t think the Irish, Italians and Spanish are racists who might
assault a trans person or an Indian if they see them whereas some Californians
do think that way about Texas or Wyoming.

------
dboreham
Especially bad for the Restaurant at The End of the Universe.

------
persia_hodl
Bitcoin fixes this.

~~~
AdrianB1
It does not. It just provides a high risk playground.

~~~
Izkata
In that regard, it works quite well. For example, until trying it with bitcoin
and litecoin, I only kinda understood dollar-cost averaging. Afterwards, with
its rapid feedback, it makes a lot more sense now.

------
Havoc
Unhappy Germans is not, historically speaking, a recipe for world happiness.

~~~
dang
Maybe not, but please don't post unsubstantive comments here.

------
345218435
„germany in uproar“ made my day, thanks. as a german i can report that nobody
is roaring. the herd is eating their cake calmly.

------
apta
Once again, the destructive effects of usury/interest on the economy are
manifesting in front of us.

