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Comment by TeMPOraL | Hacker News Reader

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?

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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

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.

> 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.

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.

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.

> 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.

In that case, why should the customer need to decide on a portfolio?

Why doen't bank to that internally and offer risk-free, variable rate investments for their customers? The expected stock return is 5-7% p.a., why can't banks offer 3-4%?

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

Except that it's not. In germany I know of two popular alternatives term deposit ('Festgeld', more flexible - can be extended) and savings bond ('Sparbrief'). The interest rate of term deposites is 0,1%, for saving bongs it's 0.1-1%. Both are considerably lower than the inflation rate of approx 1.5%.

Sure, there are different fond/stock based alternatives - but they often carry risk.

> Why doen't bank to that internally and offer risk-free, variable rate investments for their customers? The expected stock return is 5-7% p.a., why can't banks offer 3-4%?

Because banks are banks and investment companies are investment companies, and there are generally regulations about mixing the two (the removal of those regulations helped along the Financial Crisis). And just because something is "expected" does not mean it is guaranteed, further those expectations are averaged out over several years.

If you want safety, you will have to pay for it:

> Of course, all this exists today. If you want to hold gold and watches and sentimental things at a bank, you pay to rent a safe deposit box. If you want to hold oil or grain to use it or sell it next year, you can pay for storage in a tank or some other facility. [...]

> Well, it’s important to remember that money in the bank isn’t really something you have. It’s something that you are owed. When you log into your bank and see that you have $10,000 in your savings account, what that means is that your bank owes you $10,000. [...]

> In other words, to store money at a bank requires the existence of some other borrower who will pay the bank. As such, just as you’ll pay more to store grain when grain is abundant and warehouse space is scarce, you have to pay more to hold money when savings are abundant but demand for borrowing is scarce. [...]

> In the meantime, there’s lots of money out there and a limited capacity to store it all. So increasingly, savers are going to have to pay for money storage services. And although it’s not much consolation, we can at least remember that whether it’s fees for oil tanks, safe deposit boxes, security guards, insurance, or wealth managers, there's nothing unnatural about being forced to pay to preserve your wealth. [...]

* https://www.bloomberg.com/news/articles/2019-08-08/the-non-w...

> Sure, there are different fond/stock based alternatives - but they often carry risk.

If you want more return, you will have to take on more risk. Buy a portfolio of 10% stocks/equities and 90% bonds. Vanguard actually offers an ETF very close to this called VCIP in Canada: only 20% stocks/equities.

If you want safety you will have to pay for it, with low or negative rates. If you want returns you will have to take some risk.

Suck it up.

> 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

Yes. I mean, this is the goal of an inflation-forced financialized economy. The "low-to-middle-class" isn't supposed to be able to save - they're supposed to keep working.

The negative interest rate paradigm enjoys support on HN due to the upper-middle-class culture of saving into brokerage accounts holding fauxvestments, and the tech community being generally more in tune with whatever bubbles are currently building. Better access to the printing presses, and all.

The fundamental truth is that prices naturally trend downwards due to technological progress - competition wins out by doing more for less. Actively driving the economy via inflation only made sense before we learned how to make enough stuff. Now the policy is directly opposed to sustainability.

> [if] one is not entitled to a non-negative return rate on a bank account [...] how am I supposed to store money?

In a bank account with a negative rate! Storing money for you is then a service. If you have $1000 under your mattress for 10 years and the risk of theft or fire is 1% over those 10 years, then the storage service would be worth $10 to avoid that risk (assuming the risk in the bank is zero which is a simplification).

Invest in stocks, bonds from countries that don't have negative interest rates, etc.

If you keep large amounts of long-term savings in cash you are leaving a lot of money on the table anyway, although apparently a lot of Germans do that. Even in the US, high-yield savings accounts barely outpace inflation.

The purpose of the negative rate is to reduce the chances of an deflationary spiral, which would hurt savers even more than a negative rate because it would tank the economy and cause unemployment. A negative rate is probably better for savers than a recession.

This mindset is why I think negative rates are going to mess things up. People aren’t going to behave rationally. If you want to save the rational choice in this situation is to accept a small negative rate that is secure although slightly negative. But... a lot of people are probably going to do one of your two ideas. Neither of which are really “good” for the economy.

I'm a bit surprised that negative nominal interest rates are a thing. If you print enough money, inflation starts to rise. Why not print money such that you can still provide a positive nominal interest rate so people don't start bank runs and stuff money in mattresses? True, the real return would be negative, but that would be the case either way.

Because is just doesnt work. Since 2000 the amount of € (M3) has tripled while the economy grew by 50%. The money is just parked and not circulating in the economy. This is why it does not contribute to inflation. There are no good investments to be found, so adding money just adds to the sea of parked money.

Either by tolerating some risk and investing locally or by buying some US Treasury bonds.

Aren't US treasury bonds about to become negative too? I vaguely recall something from recent negative interest rates discussion.

Oh and since this is about Germany: in Germany "Bundesanleihen" have already negative interest. It will become really impossible to save some money securely for "bad times".

And if people want to tell me I should rather spend some money to push the economy... seriously? I don't need a new tv/phone/car/whatever every few years..

They tell you in the news to save the environment by doing "xyz" daily but just restrain on buying shit you don't need?? No that's too easy..

It's a symptom of late stage capitalism. It needs constant growth in order to sustain itself, but infinite growth is impossible.

And in the process of everyone spending money to buy stuff they don't need, we're destroying the world we live in.

Why do you feel that infinite growth is impossible? Seems like once we've used up all of Earth's resources we can just move along to Mars, then the outer planets, and so on.

exponential growth, grows exponentially :)

I can't find the article, but it was about extracting X(forgot which) material. And if you want just 1% yearly growth.

If I recall correctly once you outgrow a planet, its less than 250 years before you outgrow whole of our galaxy, and less than 500 before whole known universe.

You can always reduce inequality, if you have money you can't spend.

Just give it away and collect that sweet immaterial feeling of a job well done. Support causes you believe in.

This isn't capitalism you're seeing at work. It's literally caused by market manipulation by a central bank - and central bankers are central planners!

There was a good article in the Telegraph the other day by someone who used to work for the EU Commission on monetary policy back in the 90s, until he was fired for writing a book arguing that the ERM was terrible :) It argued that central banks are putting the world on a conveyer belt to communism.

The argument ran like this. Because they believe their mandate is to create spending ("growth") at any cost, any form of savings - even low risk investments - is an enemy to their goal and must be suppressed. So they print money to buy up all the low risk investments, to force investors into higher risk investments. That creates bigger bubbles and to try and push back or shrink the resulting recessions they must keep pushing spending levels ever higher, so they buy more and more assets people are using to try and store value. The terminal state is one in which central banks own most of the economy, which is communism.

This is one of the reasons why QE failed. The fed assumed that stock yields (price to earning) are the primary reason why people invest into stock and by pumping money into the stock market the yields will go down and become less attractive. In reality investors were happy that their stocks appreciated even if it was completely disconnected from the economic fundamentals of the companies that the stocks are representing.

Nothing to do with capitalism, any form of economy has a financial system and any financial system can have this problem. I studied economy in a Communist country, we had the same problems as everybody else.

What specifically? It did not seem like to me that communist countries were very focused on increasing consumer consumption at all.

And if they had been, that would not exactly been a bad thing, given how much shortage there was of basic consumer goods in communist countries.

I think it seems considerably more absurd in modern rich western countries today, that we are still pushing for ever high consumption.

For all its flaws, the communist countries at least seem to focus more on items being more easy to reuse and repair. Western society is getting deeper and deeper into really short product cycles with products which are next to impossible to repair. We are essentially pushed to an artificially high consumption level.

Yes, and many Western European bonds as well. This is part of the justification for negative interest by the ECB. The reason is that government bonds are essentially risk free. Since the ECB is totally risk free, if they were to offer a better interest than government bonds, that would be a no-brainer for banks.

This has the effect of pulling the cash in banks into the ECB and thus out of investments. Cash that is not invested, but stored in the ECB is not contributing to the economy. Moreover, it is essentially unfair competition by the ECB. Finally, governments might be miffed that investors don't buy government bonds.

There is another justification that is essentially focusing entirely on the "Cash that is not invested, but stored in the ECB is not contributing to the economy." line of reasoning. Here, the idea is simply to reduce the ECB interest so banks will want to invest more, thus growing the economy. This differs from the first argument because it doesn't care about the 'risk free interest rate' of the current market. It just wants more money in the economy.

We’re on that path, it’s not a sure thing yet. I’d be surprised if all developed countries didn’t have their bonds go negative eventually. Too much capital and not enough productive investments available.

They've been negative in real terms (subtracting off inflation) for a long time in taxable accounts for the typical US investor.

Low interest rates are a signal to people to spend money on income/value generating assets. Maybe even borrow to spend. Low interest rates means you shouldn't store money. You should store wealth in productive assets. Buy things that make your life easier and more productive.

And you know, the oldest investment of all: have kids that you raise to be loyal to their parents.

That would be nice, except the only thing that it makes sense to buy, houses, have gone up enough to be unaffordable in any place where it is worth buying.

I mean sure, I can get 3% on the stock market long term, but that isn't where I want my emergency found, because I might need it tomorrow.

>Ok, so as an individual, how am I supposed to store money?

In a current account. If you want to make money you should be investing.

... in the onset of a recession with a bunch of clowns on the wheel.

I could just burn the money, then at least I´d be warm.

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