Sweden Cuts Deposit Rate to Negative 0.25% | Hacker News Reader

Sweden Cuts Deposit Rate to Negative 0.25%

globaleconomicanalysis.blogspot.com

45 pointsgasull24 comments

The negative rate only applies for banks which store their money overnight at the Swedish Central bank (Riksbanken). The interest rate at peoples' bank accounts is stil positive. They do this to force the banks to lend the money they lend from the Riksbank, and not just keep it (to reduce the bank's liquidity risk).

It's stil very low though. Too low if you ask me, solving an economic crisis through inflation is just the same thing as forcing everyone to lower their salaries, but people don't understand that so it's easier to get away with it.

The same thing will happen in the United States. It's only a matter of time. It has been talked about plenty of times. It's interesting to see Sweden is actually being a leader in the financial markets.

I agree. I look forward to seeing how this is reported in the Economist which for several years insisted as a matter of fact that negative interest rates were impossible (I suspect this represented the view of one particularly dogmatic editor).

Much depends on the exact phrasing. Offering negative interest rates on consumer accounts is ludicrous to the point of rendering it impossible. For a national bank, nah, not so much.

Actually I remember a few years ago reading an article that said that the Federal Reserve was studying the feasibility of embedding RFID tags into paper currency. Doing so would allow the banks to know how long a particular note had been out of the banking system and stuffed in a mattress. Then a penalty could be assessed when the note was redeposited. The article said that such a system could allow banks to pay negative interest rates but still be less of a penalty than the penalty for hording cash. As I recall the article said that a $100 bill would be worth about $10 less every month that it was kept out of the banking system – just as an example of how it could work.

This is a different article that talks about the same idea in Japan http://business.timesonline.co.uk/tol/business/economics/art...

> solving an economic crisis through inflation is just the same thing as forcing everyone to lower their salaries

And debts, and bank accounts. If you look at it that way, it's sort of like compressing the part of the economy that doesn't consist of physical stuff.

This is a really interesting follow up to a great Atlantic article I saw a couple weeks ago:

http://www.theatlantic.com/doc/200907/ideas-tax

The general concept is that the only thing that should be taxed is behavior we don't want, which is unproductive assets. We should encourage people to work, so income tax is bad. We should encourage commerce, so sales tax is bad. We should encourage people to accumulate wealth, so basic property tax is bad. BUT, we should discourage unproductive assets, so we should tax them.

A negative deposit rate is essentially a tax on unproductive assets. Maybe this is the way of the future.

> unproductive assets

You mean savings? As in, we should discourage the key to long-term prosperity?

You're confusing savings (holding debts that someone else supposedly must pay, in this case, central bank debt) with investment.

No, I'm not. Savings precede investment.

Yeah, you save up a good chunk of money before even starting to think about buying a house (through a mortgage).

On a sidebar (I'm doing that a lot today on HN), pure savings are pretty unproductive, they'll lose value against inflation.

Inflation and a falling fiat currency are already part of the system to mobilize 'unproductive assets'. This propels wealth to invest. If it was just a gold based currency then there is no reason to invest (largely part of feudalism where hanging on to wealth makes more sense as population grows and wealth increases due to demand).

Inflation makes a dollar not invested is worth less than .96 cents. Investment for interest makes a dollar worth more than a dollar in a good investment like 1.04 at 4% interest.

Both interest and inflation encourage lending and investment rather than unproductive assets as you mention such as hoarding gold and doing nothing with it like the kings and queens of the feudal ages.

You are better off investing than holding onto money in a well devised economic system.

Why wouldn't there be a reason to invest under a gold system? Why not the standard reason: a bigger return on investment?

In a well devised economic system you would do well if you saved and have the potential to do better if you invest. In our system you are forced to make risky investments or face the gradual loss of your wealth to inflation.

Why wouldn't there be a reason to invest under a gold system? Why not the standard reason: a bigger return on investment?

There would be a reason, though less compelling and with higher risk.

The difference of growing wealth really comes down to who is paying interest and who is collecting. Investing gets you some of that interest income to offset inflation.

If there was no throttler such as a fiat currency then everyone would have gold holdings. This means that just holding onto your money is more lucrative than investing in many types of investments.

In fact some people put money in gold for that very reason today. So just keeping your money in gold would be an investment rather than taking risk to invest, especially in a time of recession or depression.

So sure you might have a bigger return on investment on some things but you are not separating or stretching your gold any more than other people can.

Fiat currencies and inflation as well as interest fuel and force investment. I think that can be good, it sure leads to more economics and money movement.

People can still put their money in gold, savings, or other currencies but this is sort of a negative motivator when things like savings accounts or money markets pay less than inflation. It forces you to invest in companies, try businesses etc.

I guess now is a good time to be a burglar, as people will be stuffing money into their mattresses.

Not really, as inflation is properly damaging more than this negative interest.

to fight inflation you raise interest rates, so that citizens spend less and save more.

by cutting interesting rates they are encouraging spending, and increasing inflation!

they can of course just move their saving elsewhere (another country) where rates are better! Which is what I would do, at least in the short term!

yes, like Iceland. Oh, wait...

The very reason they did this is that inflation is currently negative -- that is, Sweden is suffering deflation. Money stuffed into a mattress appreciates in value as time passes.

Can you explain how that is possible? In my understanding, if the interest rate is negative then the bank is, in other words, charging you a fee to keep your money there plus you are still taking a hit from inflation so at least if you take all your money out of the bank you are only taking the hit from inflation and not having to pay the bank a monthly fee to do so.

In a word: Deflation.

Even then leaving your money in the bank at a negative interest rate would not be better than having it in a mattress discounting physical theft risks of course.

Sweden's lost decade?

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