You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Fed to transfer $140 billion in remittances to Treasury
- Thread starter bond_trad3r
- Start date
I think, perhaps, he is referring to "effective" rates. Real inflation, not the government figure, is running around 6%. So if you, for example, have borrowed at a fixed rate of say 3.75%, you can consider that you have an effective rate of about -2.25%. You'll be paying off your loan with dollars that are declining in buying power by greater than 3.75% per year. But of course you need your income to keep pace with real inflation for this to feel like much of an advantage.Quote from Martinghoul:
Huh? Rates already negative? Which rates?
As we know, inflation favors those in debt at fixed rates. The loans are paid back with dollars that have less buying power than the dollars borrowed.
Yes, I know real rates are negative and you don't need inflation of 6% for that. There was no mention of anything "real" in either the post or the link.Quote from piezoe:
I think, perhaps, he is referring to "effective" rates. Real inflation, not the government figure, is running around 6%. So if you, for example, have borrowed at a fixed rate of say 3.75%, you can consider that you have an effective rate of about -2.25%. You'll be paying off your loan with dollars that are declining in buying power by greater than 3.75% per year. But of course you need your income to keep pace with real inflation for this to feel like much of an advantage.
As we know, inflation favors those in debt at fixed rates. The loans are paid back with dollars that have less buying power than the dollars borrowed.
My partner and I had a business in Switzerland and actually operate in a negative interest rate environment. While we had a Swiss corporation because it was foreign owned (the two of us) in banking maters it was treated as an alien corporation. We needed to keep a modest amount of CH on hand for payroll and operating expenses and on those funds we paid 2% per annum as a negative rate.
The Swiss had a very good reason for doing it. The could not stand any further appreciation in the currency. Exports were plunging and they needed to cool off the rampant speculation by Soros and the like. To a degree it worked but the scale of Switzerland made it easier. The UK in the 90's did not have the option as a major financial center. Zurich, contrary to poulr belief is not a major financial center.
The Swiss had a very good reason for doing it. The could not stand any further appreciation in the currency. Exports were plunging and they needed to cool off the rampant speculation by Soros and the like. To a degree it worked but the scale of Switzerland made it easier. The UK in the 90's did not have the option as a major financial center. Zurich, contrary to poulr belief is not a major financial center.
You're confounding a great many things here. Yes, real rates have been negative for a while, as the first link mentions. On the other hand, nominal short rate (FedFunds target), which the second link talks about, is not negative and isn't going to go negative.