Bank of Japan Decides Negative Interest Rates

You guys probably saw it last week in news, but BOJ is going to negative interest rates. I read, not surprisingly, this pushed some money held in Japanese banks into other securities such as other currencies, equities and precious metal, to name a few.

Do you guys think this is a move that will be followed by other major central banks? Could this be the major catalyst for move into commodities such as metals?

 

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Negative Interest rates? Error does not compute

 

http://www.latimes.com/business/la-fi-japan-negative-interest-20160129-htmlstory.html

 

Negative Interest to equate to costing you to put money in the bank.. Does that mean bank will charge your monthly fee + % of deposit?

Keep your old mattress handy.

 

Several central banks have instituted negative rates. So far, they haven't had much, if any long-term effect.

 

Doesn't seem to effect small money holders only the large Corporations who are getting off easy since they normally find loopholes in tax laws and get off like fat cats.

What is the Bank of Japan actually doing with interest rates?
This negative interest rate policy doesn't directly affect consumers, but rather the financial institutions that hold money at the Bank of Japan.

 

So negative interest rate means that the central bank takes money from corporations who hold money in the bank? That's a good way to ensure nobody does business in your country...

I thought it would mean they'd pay me to take out a loan

 

This is no big deal. It means only that commercial banks leaving reserves with the Japanese central bank will be charged a small percentage for doing so instead of earning a small percentage. This is being done to discourage fund parking with the central bank and instead making loans or buying securities of some sort. We (the Federal Reserve) should have gone about negative 5% during the 08-09 crash. We didn't have the guts.

This would have been instead of QE, not in addition to it.

 

Negative interest rates are another desperate attempt to kick start the economy. And I think there will be unintended consequences that the central planners won't like.

 

What could possibly be a negative unintended consequence of kick starting an economy that badly needs it? I don't know of one, other than creating oversupply of some class of asset for which there are no buyers. (See mainland China urban apartments.)

 

I saw an article somewhere that said a single year of negative interest rates is actually healthier long term then several years at zero rates.

 

I believe that fervently. Whatever it takes to get funds flowing through an economy is always good, UNLESS you have a huge overhang of parked reserves in a central bank, like we do in the U.S.

 

Now, that is an interesting thought.

 

Remember, the Fed only directly controls a few interest rates, all of them EXTREMELY short term rates. When they did the 25 basis points bump in December, what happened to intermediate term rates? (10 years or so.) They went DOWN! The market sets the interest rate on 10-year Treasuries, and demand for them is UP, which drives the price UP and the yield DOWN. Last summer the 10-year T-bill rate briefly went over 3.0%. Now it's below 2.0%. Anyone interested in tying up money for 10 years at 1.98%? Apparently SOMEBODY sure is. They absolutely MUST disagree with stackers and bugs, or they'd never do it.

Even interest rates in a single country don't move in tandem. We sometimes have a negative yield curve in the U.S., meaning you can get more yield for shorter maturities than longer ones, but not lately.

 

Huh? So it's only good if there isn't "huge overhang" and instead pushes out a little bit of overhang to kickstart an economy? Seems to be contradictory. Wouldn't larger amounts of money being pushed out into the economy be better?

Anyway, if you all will note, I started this thread in Bullion Investing forum. So how do you think this could affect bullion? Could it be helpful to building or maintaining a healthy economy and therefore sink metal values due to a lack of need for "safe" investing?

Or do you think negative rates could eventually make its way into commercial banking (eg Bank of America, JPMorgan, etc) and affect not just big businesses but medium and small business? Perhaps even personal accounts someday. Especially as we move towards a cashless society. Wouldn't it be something if the elite that control the banking system have a plan to take away physical money and then basically force you to pay them interest because you'll have no choice but to keep your money electronically with them. Hate to sound like a conspiracy guy but just putting it out there.

 

You have to pick one method, because if you do both, inflation becomes a clear and present danger. You either QE and inflate banks' balance sheets to make them solvent after a liquidity crisis OR you almost FORCE them to lend. If and when we see both happening, THEN AND ONLY THEN will inflation be a plausible fear, and metals should advance.

When will I start buying metals? There is no "price" that will make me pull the trigger. That will happen ONLY when we see lending starting to get easy again, because as long as banks keep their funds with the Fed, inflation is a non-starter.

All we MAY see in commercial and personal loan rates is marginally LOWER rates, not negative. Only the Swiss among "rich" economies are actively considering that, and that's partially because they have historically had low rates compared to everyone else.

 

I was reading that in the case of Japan, it was pushing the money out of the country and therefore into other currencies. Not sure how that is supposed to help the economy in Japan.

Perhaps in a country like USA it could have some kickstart impact since big businesses would be more inclined to reinvest within as opposed to in other countries where the laws and government aren't as friendly or stable.

 

What seems to be happening worldwide is the global amnesia about who and what the mainland Chinese are has begun to wear off. As capitalists increasingly realize that "free market" economics in China is inherently a lie, China will deservedly look like a worse place to invest in. Japan has things they could and should invest in domestically, as do most economies, but this hysteria for short-term yield metrics is warping decision makers' minds. They're becoming too concerned with doing well, and not enough with doing good.

You can make Nash's equilibriums irrelevant by adopting a cooperative paradigmatic mindset rather than a non-cooperative one.

 

Just curious, by "easy" do you mean loans become easy to get? Or do you mean easing, as in less loans are being made?

As for commercial banking, I agree we may only see marginally lower rates in the near/mid term, but do you see the direction we are potentially headed? Think big picture.

 

I mean loans easier to get, which they aren't now.

Big picture? We have two options. 1) GRADUALLY loosen credit worthiness standards and concentrate more on the viability of the PROJECT rather than the borrower. In other words, obsess on "what", rather than "who". 2) Decades of consecutive "barely scraping by" economic years marked by the obscenely uber-wealthy not paying reasonable taxes and instead forming foundations to "give away" their fortunes that were never fairly taxed in the first instance. The old "edifice complex" run amok.

Pick one.

With anything like today's policies in place, I can't think of ANY way inflation is a valid fear. Deflation? Yes. Inflation? No.