Negative creep | Hacker News Reader

Negative creep

economist.com

27 pointscsomar52 comments

>"Savers might stomach a modest fee for making bank deposits, but as rates go deeper into negative territory, they will find ways to avoid charges. Switching to cash is the obvious solution, which is why some have suggested getting rid of banknotes altogether"

This is an incredibly troubling aspect of the push toward a cashless economy. Not only does it marginalize the unbanked (those who can't bank due to illegal immigrant status, or other mitigating circumstances), but it's also an incredibly powerful tool for population control.

It removes the agency a modest savings give us, by concentrating all wealth under the control of a select few anointed conglomerates. It also allows onerous policies like negative interest to be a new, truly inescapable regressive tax regime.

Edit: notahacker makes a compelling point that negative interest is likely less regressive than inflation. I thought it was something worth bringing to the root of the thread.

Thank god cryptocurrencies exist.

Not in any meaningful way.

There is no structural reason why cryptocurrencies can't have negative interest rates.

I guess the difference is that it's users are not at the mercy of bankers (made of flesh, tradition and law) but instead predicable computer programs (made of logic & code).

The user is still at the mercy of someone: In current implementations at those who have a majority of computing power in the network. Code changes in Bitcoin have happened in the past and will happen in the future.

Your dichotomy is imaginary. The computer programs are made by programmers (made of flesh, tradition and law), and bankers usually don't directly make the calls, instead relying on their programs (made of logic and code).

That is only partially true. Only very non-controversial changes manage to get through. You can see from the current blocksize debate that it is quite difficult to change the bitcoin protocol.

Also majority of hash power doesn't decide everything. If miners decide to create cartel where they change the protocol rules (via hard fork), they still need a place where they need to sell those mined coins. So exchanges/services/merchants should be in the same boat.

Also there will be always a lot of competing cryptocurrencies, where users can switch to when needed.

How is that different from regular currency? It is quite hard to implement laws that effectively enable negative interest rates. You can see that in, well, this discussion.

What really happens is that power is shifted away from regular people (who can at least assert some influence on those making the changes) to those holding capital.

But what would make me to use cryptocurrency with a negative interest rate? Of course all kind of cryptocurrencies can exist, it wouldn't be a surprise if there were already some kind of negative interest-rate model in some of the 100's of altcoins. But the user decides what kind of cryptocurrency he uses.

You can't use a cryptocurrency on your own. The network effect is strong and it's unlikely that more than a few useful cryptocurrencies will emerge.

There is a reason why negative interest rates exist now. It would be foolish to assume that those reasons go away and won't be implemented into cryptocurrencies in the future if they are used widely.

Based on your comments, I don't think you understand cryptocurrencies very well. Who would get the money from negative interest rates? Miners?

If miners are so powerful that they can change the protocol rules, why they wouldn't just raise the block reward? ( increase inflation/monetary expansion)

I do understand how cryptocurrencies work. Negative interest rates don't have the same effect as inflation and could be implemented in code. Just because miners have the same nominal changes in their wallets doesn't mean that the effect on anyone else is the same.

I just don't think our current problems with currency go away just because we use cryptocurrency. There is no reason to. Central banks don't enact policies because it's fun but because they think it will have a certain effect. People will find a way to do so in the future. Whether it's called "Inflation" or "negative interes rates" or whatever is not relevant. The only thing that matters is what happens to people's money.

Oh, and it would be much easier if you would actually reply to my comments (instead of yours). If neccassary wait a few minutes to do so.

I decide what kind of global currency I use, and how it is stored. But in the same way trading in and out of bitcoin costs money, so does FX.

Until large numbers of retailers accept bitcoin directly it's just a different currency with a less stable exchange rate, lower liquidity and a higher potential for low tech users to get their money nicked.

Negative interest rates are not an inescapable tax. You can easily escape them by investing in equity rather than fixed income. (Inducing such investments is exactly the purpose of lowering interest rates.)

It's also not regressive, negative interest is simply flat.

Although true, there really is no substitute for money (cash or a deposit account) in terms of liquidity and fungibility.

You need at least some liquid capital, and those with the least money will always be 100% liquid (or very close to it), and are hence the worst off under negative interest.

This is true, but then a .25% haircut on their deposit accounts doesn't penalise the poor nearly as much as widely accepted existing regimes like inflation, never mind a 20% sales tax or VAT (and in practice, is only likely to occur when inflation is low and more conventional taxes are being cut)

It does when the poor are also in debt.

Lower interest rates are good for debtors.

They loaned under higher interest rates, and then deflation hits, that's bad.

If nobody will refinance (often more true for poor people), this puts them in a double bind.

Your inflation point is something I had not considered.

The cost of negative interest is likely less regressive than than the existing system of inflation.

It will be interesting to see how this untested financial environment will settle to equilibrium, and what our world will look like as a consequence (like you mention, more VAT? Or fewer taxes as borrowing grows cheaper?).

On the contrary, this won't hurt the poor and unbanked at all. Those folks live hand to mouth, at least according to standard progressive lore.

In the EU you'll soon have a right to a bank account: http://europa.eu/rapid/press-release_STATEMENT-14-123_de.htm

When I was in Bali it was noticeable that the 'unbanked' used mobile phone credit as a currency.

This is also very common in Central Africa.

> ... due to illegal immigrant status

Discouraging illegal activities (any illegal activity, not immigration in particular) is a _feature_ of banning cash, not a bug.

The problem is that laws are made by other humans. As history and present events have shown, we are not above using the law as a weapon against others. Having a government limited in scope and in power was a feature too.

Assuming for a moment you're not a legal nihilist, if you feel "banning cash would make illegal immigration harder" is bad, a more logical solution is to make legal immigration easier. If you're OK with all the other consequences of a regulation -- in this case, making it difficult to avoid paying sales/income/social security taxes, making it difficult to purchase illegal drugs or weapons, to fund organizations deemed by the government to be "terrorists", etc etc -- and there's only one or two known consequences of the regulation you're not OK with, it's quite possible in many cases to legislate around the downsides.

The reasoning behind BOJ's move was to force banks to actually lend some money to people*

Getting funding to start a business in Japan is rather hard. The good old fashioned way was to get a loan from the bank. Japanese banks simply prefer to avoid risk at all costs, deposit a pile of cash with BOJ and collect almost 0 interest :) Better than those risky loans.

* and of course it doesn't hurt to weaken the currency while at it. Everyone and their dog are doing this and it is getting really hard to be the one weakening the currency the hardest.

But it has the opposite effect. Banks tend to lend less the lower interest rates go. There are other risks that have to be balanced which in a negative world forces their hand.

"Were interest rates negative enough for long enough, specialist security firms would emerge that would build vaults to store cash"

I see this speculation from time to time, but no data to back it up. I wonder, who benefits from such rumors? To my limited understanding in economics, negative interest rate is to encourage lending vs hoarding, so while money is moving, you don't actually "lose" them?

The idea is that just as you're supposed to want to lend... you might also choose to stockpile cash. Both strategies potentially mitigate the negative interest. In tho regime, banks pay the central banks less in the future for money they take on loan now. The common sense assumption is that this means money will be worth more in the future. Therefore you may want to invest in cash. At a point, this makes cash like gold traditionally and hence stockpiling aka fort Knox. But that's why you can go negative...you just cant go negative enough such that folks start stockpiling. Iraw expensive to stockpile

Negative interest rates are interesting. In Denmark many banks actually closed down for a while, due to the negative rates crashing their software.

I guess when all of the people and businesses start putting money in their mattresses the government will just ban paper money in general. Then there would not be anywhere to hide money.

Except for cryptocurrency.

> Then there would not be anywhere to hide money.

Would you miss it?

I don't think it will be ever very easy for goverments to ban owning physical, valuable things. If they don't issue their own paper currency, someone else will.

I think this fantasy some people have of banning paper currencies pretty well points just out that the people who propose the banning, have no idea how the world works.

Then you could just stash USD or some other currency that has paper.

Placeholder comment for people who thought this was an article about Nirvana.

Or rather Radiohead....?

Nope that's definitely Nirvana! https://www.youtube.com/watch?v=-5ijtz6Du_s

You're thinking of "Creep," which was only negative in that it was copped a little too much of The Hollies for some folks' taste.

One of the better songs on Bleach. Very raw and powerful sounding.

Bitcoin, once more popular and stable, will make it hard for these regressive plans to be implemented.

Will it ever be more popular? EU is recently thinking about banning crypto currencies. This might end with ID verification requirement for all exchanges. Then Visa and other CC issuers will ban anything related to BitCoin, just like PayPal did and whole market will be dead.

Bitcoin commerce is surprisingly resilient. Sites like LocalBitcoins facilitate in person cash trades.

As long as you can barter things of value, like a brand new Macbook for bitcoins, bitcoin will survive.

> Sites like LocalBitcoins facilitate in person cash trades.

Sites like LocalBitcoins would very quickly cease to exist if there is a concerted government effort to ban Bitcoins.

Or move to anonymous networks or more relaxed jurisdictions. Usually countries fail to unite on this kind of topics, I'm pretty sure jurisdictions like Hong Kong will allow always cryptocurrency trading sites.

Or will Bitcoin be like the year of the linux desktop where it's always a year away?

I personally don't see much sense for cryptocurrencies to replace credit card or some other payment methods. Instead bitcoin can become the enabler of international trade, and maybe base for other innovations.

In the same sense as linux never became popular desktop OS, but it has gained new market share from elsewhere.

Why is Bitcoin any different to cash in this case? Companies who will already store your Bitcoins for a small fee exist (and are probably safer for most people than self-storage).

There are plenty of asset classes that already provide a notional alternative to negative interest reserve balances, and making those [even] more fungible and consumer friendly is a far more realistic option than making BTC less unstable.

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