Are today's negative rates in europe and japan telling us deflation lies ahead? Or have lenders changed their views regarding the time value of money? Or are rates negative simply because the government and central banks want them to be?
Argue amongst yourselves
I heard from one of my (banker) friends, that once rates go negative, it is very hard to go back. Is this true? What do you guys think?
Deflation is hard to fix. Negative rates are related to inflation but they aren't themselves deflation and there's no indication we're in a long term deflationary environment yet. There have only been a few instances in modern economic history of negative rates and even fewer cases of deflation, so it's hard for anyone to predict the outcome and if they're being honest they'll attach massive error bars to anything they predict.I heard from one of my (banker) friends, that once rates go negative, it is very hard to go back. Is this true? What do you guys think?
Deflation is hard to fix. Negative rates are related to inflation but they aren't themselves deflation and there's no indication we're in a long term deflationary environment yet. There have only been a few instances in modern economic history of negative rates and even fewer cases of deflation, so it's hard for anyone to predict the outcome and if they're being honest they'll attach massive error bars to anything they predict.
Inflation and deflation refer to increases and decreases I'm the cost to buy goods and services. Not interest rates. Generally interest rates are a little bit higher than inflation, bit that's not a given especially at inflection points. We're not seeing deflation yet in goods and services costs.You said "negative rates are related to inflation but they aren't themselves deflation" Is that a typo?
Also, the point is to look forward in a reasonable manner given multiple factors and probabilities, not just blindly throw out a prediction. The thing is once you've gone past the "no indication" as you put it and actually realize or confirm we're in a longer term deflationary environment, the damage will already likely be at a point that's a lot more difficult for you to make the appropriate move or put yourself in an advantages positioning(whatever that means not trying to get into a super long debate regarding what to do).
There's a reason the FED has fought so hard against deflation for decades now, we have a consumer based economy and rely on expansion of debt to keep things a float.
But in rents and insurance, costs rise. They know why they exclude those.Inflation and deflation refer to increases and decreases I'm the cost to buy goods and services. Not interest rates. Generally interest rates are a little bit higher than inflation, bit that's not a given especially at inflection points. We're not seeing deflation yet in goods and services costs.