Hacker News Reader

>>"Second - [..]there is no fair situation where I accept a negative (or nil) expected rate of return for taking on real risk."

Except that governments don't need any market to finance themselves. Even if you want to keep that fiction, you can do something like the European Central Bank is doing with the debt of the Euroarea. They don't buy the bonds directly but they buy them in the secondary market, creating demand. The investor would not buy that bond for the return, only to make arbitrage between the primary and the secondary market.

There are many tricks that can be done to hide the obvious fact that governments are not households and control the currency, but, at the end of the day, that's the reality.

> The investor class aren't owed anything

I don't know about your country, but in my country, you would be generalizing. There isn't a specific "investor class" because a large percentage of the population invests due to industry-wide organized pension funds.

They aren't owed anything either. If bad decision makers are rewarded then the situation will only get worse and people who don't know what they are doing will accumulate more market power.

There needs to be some sort of program to keep people fed and in decent accommodation; but there is too much to be lost rewarding people for standing by idly while bad decisions get made with their money. It is not going to work out well in the long term bailing out specifically the people who are screwing up.

> if the rate of return is negative then that really just means nobody rational will be willingly to lend the money to the government

https://www.snb.ch/en/iabout/stat/statrep/id/current_interes...

Swiss National Bank is at -0.75% and still getting buyers. Negative rates are feasible. It is, after all, a free market.

There is nowhere else to go and switching into physical assets has a carrying cost and an illiquidity problem.

> It is, after all, a free market.

It is a remarkably unusual free market where a small committee declares what the market price will be. I'm not sure what more it takes to get it called a planned market.

Bonds are sold at auction. https://www.treasurydirect.gov/instit/auctfund/work/work.htm

If investors don't like the price, they are free not to buy them. A notable feature of the Greek crisis was that investors did in fact refuse to buy Greek government bonds, or only offered substantial discounts ("yields").

It is perfectly possible to have a $1 bond which pays $0.95 in 30 years sell for $1, $0.95, or even $0.90.

That isn't what characterises a free market though. A free market is one where the price is set by participants without special regulatory powers. I'm not sure about the SNBs specific mechanisms; but the central banks typically stand up and announce what price the market will discover +- some error bands they think are reasonable.

It is a bit of a leap to call that a free market. The price discovery is going to discover roughly the price that was announced. I mean, it isn't like the "free market" is going to head off to 2% while the SNB says the interest rate is going to be -0.8%. The correlation between committee announcements and actual rates seem pretty high [0].

In a fairly literal sense that isn't a free market. The outcome of the market is being fixed.

[0] https://www.snb.ch/en/iabout/stat/statpub/zidea/id/current_i...

This is no more price fixing than Apple saying what it will charge for Macbooks. "Price fixing" normally implies collusion or legislation. This is just .. offering something at auction?

Central banks are declaring what the market price should be, and then the market price is moving in a band around that target. This is explicitly the process that the English-speaking banks use, and the SNB looks like it does something similar. A key characteristic of a free market is that there isn't one rather small committee that declares, in advance of the fact, roughly what the price should be.

The presence or absence of an auction isn't important for working out if a market is free or not. Macbooks operate in a free market and Apple doesn't normally auction them off. And the market they compete in is the market for laptops - Apple has no particular power to decide what the price of a generic laptop is. The price I pay for my laptops isn't at all controlled by what Apple thinks the price of a laptop should be.

> roughly what the price should be

Why do you feel they are declaring what the price should be? Aren't they basically saying "if you buy this note we'll give you X dollars in Y years"? Is it the way the interest is handled that defines the "rough price"? Or are there "reserve prices" and the like that I don't know about?

> The price I pay for my laptops isn't at all controlled by what Apple thinks the price of a laptop should be.

That feels really backwards to me, unless you mean that you never buy from Apple? I feel like the price of a MacBook is entirely determined Apple: they set the price, the market determines how many to buy, and they try manufacture and sell this number. If they feel they can make more money at a different price, they set a different price in the future.

Contrast this with an auction, where the number of items is fixed and the market determines the price. I can see arguing that whether the market is "free" is independent of which pricing mechanism is used, but I can't see how one can argue that Apple doesn't determine the price that their laptops sell for.

(I'm ignorant of many economic theories. I assume your views fit into some theory that I'm unfamiliar with. Please take my response as a request for more information about this theory rather than any sort of accusation.)

> Why do you feel they are declaring what the price should be? Aren't they basically....

The 'we'll give you X dollars in Y years' that is (notionally) written on the bonds isn't the important part of the process. If you auction a bond it doesn't matter what interest rate the bond is nominally at, traders will bid for the bond such that the coupon it pays is (market interest rate%) of the actual price bid.

Eg, here is a reasonable view of the market for Australian government bonds [0] which I'm more familiar with. If you look at the bid column you'll see that nobody is bidding $100 for bonds, even though all the bonds are nominally $100. The same dynamic will be seen at a central bank auction.

I feel they are declaring what the price will be because central banks will typically have press releases saying "we will target an interest rate of X%". Then the market fairly reliably settles on some interest rate that is quite close to what was declared. It isn't related to the fact that they hold auctions; the auctions are irrelevant. An auction doesn't prove or disprove anything about whether the market is free. The central banks are taking actions to influence the interest rate and they aren't at all governed by market forces - the market for interest rates is a controlled market.

> I feel like the price of a MacBook is entirely determined Apple...

If it were entirely determined by Apple then the prices would be in the billions. The floor on the price of a Macbook is entirely determined by Apple, the ceiling is controlled by the customers. And both parties can be swapped out (Apple for, eg, HP and consumers are basically a faceless interchangeable mass) if the other thinks there are better alternatives.

For interest rates the floor and the ceiling are controlled by central banks, as can be observed by noting the "state target" -> "achieve target" pattern in central bank declarations and what the interest rate then does. It is a market, but it isn't free.

[0] https://www.asx.com.au/asx/markets/interestRateSecurityPrice...

> The investor class aren't owed anything and the jaw dropping foolish policy of bailing out losers needs to stop.

For that the US especially (but also the rest of the Western world) needs to seriously sharpen and actually use antitrust legislation. At the moment there are way too many companies whose failure would cause serious shockwaves across the worldwide economy.

The funny thing about the second is that there actually are some people who would in fact voluntarily lend at negative rates if they are defined as lower. But that is getting into Forex messiness and stability aspects.