-0.5% interest mortgages
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A Danish bank is offering mortgages at a 0.5% negative interest rate — meaning it is basically paying people to borrow money
Denmark's third-largest bank said this week that customers will now be able to take out a 10-year fixed rate mortgage with an interest rate of -0.5%.
Jyske Bank, Denmark's third-largest bank, said this week that customers would now be able to take out a 10-year fixed-rate mortgage with an interest rate of -0.5%, meaning customers will pay back less than the amount they borrowed.
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I heard that was a bad sign...
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Sounds like a bug promoted to feature.
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Offering loans at a negative rate may seem counterintuitive. But some banks are content to take a guaranteed small loss rather than risk bigger losses.
So, the bank thinks that the stock and bond market will go tits up sharpish, and prefer to not lose as much money? Or why would they lose the money otherwise?
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@Tsaukpaetra said in -0.5% interest mortgages:
I heard that was a bad sign...
Mostly because it indicates that the bank thinks that there is a high potential for strong deflationary pressures, and therefore that the future money that the borrowers use to pay back the last parts of the loan will be worth more than the money they use to pay back the first parts of the loan.
Deflation is generally regarded as a bad thing by modern economists because it discourages current consumer spending. (Why spend now? Next year I can get more for the same money...)
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@Steve_The_Cynic Alternatively, they think that either the interest rates will rise eventually, or they'll be able to pick up a lot of well-kept real-estate for a pittance (if deptors default). Real estate rarely loses value, so it's a bit like investing in gold. (Yes, yes, I know exceptions exist, but it's the general rule.)
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@acrow said in -0.5% interest mortgages:
Real estate rarely loses value, so it's a bit like investing in gold.
When it loses value (especially if it's more than 1–2%), you end up with lots of people who feel they have their feet nailed to the spot, unable to afford to sell yet desperately wanting out. It's fun to watch TBH (
), provided you don't have significant skin in the game at the time…
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@dkf said in -0.5% interest mortgages:
@acrow said in -0.5% interest mortgages:
Real estate rarely loses value, so it's a bit like investing in gold.
When it loses value (especially if it's more than 1–2%), you end up with lots of people who feel they have their feet nailed to the spot, unable to afford to sell yet desperately wanting out. It's fun to watch TBH (
), provided you don't have significant skin in the game at the time…It's fun to watch, up to a point, if you rent, or if you bought long ago and aren't interested in selling. For everyone else, it's time to bite your fingernails so much you end up chewing on your armpits. I was renting in the UK in the early 90s, and people were seriously stressed about all the "negative equity" fun and games, aka borrowing too much, especially on the day when George Soros broke Britain's participation in the pre-Euro "snake", and interest rates briefly touched 15% rather than the more usual (for the time) 4-5%.
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@dkf said in -0.5% interest mortgages:
@acrow said in -0.5% interest mortgages:
Real estate rarely loses value, so it's a bit like investing in gold.
When it loses value (especially if it's more than 1–2%), you end up with lots of people who feel they have their feet nailed to the spot, unable to afford to sell yet desperately wanting out. It's fun to watch TBH (
), provided you don't have significant skin in the game at the time…I sold my apartment a year ago, because it smells like a bubbling recession in Europe. At least to my nose; not everybody seems to agree.
One relative was vehemently against my selling it, calling it idiocy. So I made her buy it, at about market rate. It's sort of like a bet now: Who laughs last depends purely on interest rates and the real-estate market. The rent I pay just about covers the loan payments, so if she was right, then she'll have got a free apartment in 20 years. If I was right, then she'll lose big in less than 10.
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@Steve_The_Cynic said in -0.5% interest mortgages:
interest rates briefly touched 15%
I vaguely remember the late 1970s when interest rates were at that level for a substantial amount of time. Money was very tight indeed.
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@dkf said in -0.5% interest mortgages:
@Steve_The_Cynic said in -0.5% interest mortgages:
interest rates briefly touched 15%
I vaguely remember the late 1970s when interest rates were at that level for a substantial amount of time. Money was very tight indeed.
For sure. In 1981 my family moved to the US, and my parents were able to buy a house with an "assumable" 8% VA loan (that is, transferable from the current owner of the house to the new owner) at a time when a new loan would have been at 19%...
But the problem wasn't so much the absolute rate as it was the sudden (i.e. during a single day) increase of 10 percentage points, promising to, in effect, triple the interest rates on people's mortgages. Since British mortgage practice contains horrors like "endowment mortgages" (where you pay only interest during the life of the loan, and there's a sort of weird investment-driven thingy that in theory pays the principal at the end), that would have instantly tripled their monthly payments.
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@dkf said in -0.5% interest mortgages:
unable to afford to sell
Surely it's always better to sell low than to hold on and sell even lower?
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@anonymous234
If you have a mortgage you're underwater on, you can't sell low, unless you have the capital to make up the difference, or can convince your lender to accept a short sale (basically you sell it, bank accepts whatever you get for it as paying off the loan, and you walk away... like getting foreclosed on with most of the paperwork done up front).
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@izzion said in -0.5% interest mortgages:
@anonymous234
If you have a mortgage you're underwater on, you can't sell low, unless you have the capital to make up the difference, or can convince your lender to accept a short sale (basically you sell it, bank accepts whatever you get for it as paying off the loan, and you walk away... like getting foreclosed on with most of the paperwork done up front).I don't recall the legal validity of it, but during the early-90s house-price / negative-equity crisis in the UK, a lot of people (who needed to move for other reasons) decided to skip the whole "sell and see what the bank will do" thing in favour of just handing over the keys (and, by implication, legal ownership) of the house / flat / whatever to the bank(1) and walking away. That way, selling the property for enough to cover the loan is the bank's problem.
(1) At least in concept, it's sort of sound. The mortgage is secured against the house, so if they can foreclose and seize the property when you don't pay, you should be able to hand over the property and avoid paying (a sort of pre-emptive reverse foreclosure).
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@Steve_The_Cynic called "jinglemail" here. It only works in non-recourse areas. Other places they can come after you for the difference.
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@anonymous234 said in -0.5% interest mortgages:
@dkf said in -0.5% interest mortgages:
unable to afford to sell
Surely it's always better to sell low than to hold on and sell even lower?
The problem comes when the house is worth less than what you owe. For example:
You owe $100,000 but the most you can sell the house for is $90,000.
So, you will have to pay $10,000 in order to sell the house.
But you don't have $10,000.
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@Steve_The_Cynic said in -0.5% interest mortgages:
(1) At least in concept, it's sort of sound. The mortgage is secured against the house, so if they can foreclose and seize the property when you don't pay, you should be able to hand over the property and avoid paying (a sort of pre-emptive reverse foreclosure).
Yes, at first I thought "it makes sense that you'd still have a debt with the bank after selling, because you're the one who decided to buy the house at that moment, not the bank".
But if the bank technically owns the house, and the contract says the house is the only collateral needed for the debt, then it seems like you should be able to reject it when it's convenient.
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@anonymous234 said in -0.5% interest mortgages:
But if the bank technically owns the house, and the contract says the house is the only collateral needed for the debt, then it seems like you should be able to reject it when it's convenient.
In the US you could file for bankruptcy to discharge the debt, but that's not exactly a get out of debt free card.
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@El_Heffe said in -0.5% interest mortgages:
@anonymous234 said in -0.5% interest mortgages:
@dkf said in -0.5% interest mortgages:
unable to afford to sell
Surely it's always better to sell low than to hold on and sell even lower?
The problem comes when the house is worth less than what you owe. For example:
You owe $100,000 but the most you can sell the house for is $90,000.
So, you will have to pay $10,000 in order to sell the house.
But you don't have $10,000.I remember hearing about additional issues...
- bank "forgives" that 10,000.
- IRS treats that as income and taxes it.
(though here in CA, those numbers are an order of magnitude too low)
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@dcon said in -0.5% interest mortgages:
@El_Heffe said in -0.5% interest mortgages:
@anonymous234 said in -0.5% interest mortgages:
@dkf said in -0.5% interest mortgages:
unable to afford to sell
Surely it's always better to sell low than to hold on and sell even lower?
The problem comes when the house is worth less than what you owe. For example:
You owe $100,000 but the most you can sell the house for is $90,000.
So, you will have to pay $10,000 in order to sell the house.
But you don't have $10,000.I remember hearing about additional issues...
- bank "forgives" that 10,000.
- IRS treats that as income and taxes it.
if the bank takes the collateral instead of payment, does that mean the outstanding debt is forgiven? I would think not since the collateral is presumably an acceptable replacement when non-payment happens.
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You can "Strategically default" (jinglemail) in the US. But it severely dings your credit and there is basically a no loan flag on it for 4-7 years (depending on where on various things), even after the flag is officially off it can be much harder to prove that you are worthy of getting another loan. Most states allow the bank to seek recourse and charge you the difference between actual and loan value. This can actually be a double whammy as the IRS takes the difference as "income" and taxes you for it. So, going with the $10k under loan value above, the IRS would consider that as a $10k lump sum payment, which is taxed very heavily.
Additionally, normal foreclosure takes time, (depending on the state, there is even a minimum number of days that it can take). During the foreclosure process you are still legally allowed to live in the residence. If you choose to default, the bank can kick you out in as little as 3 days (again, depends on state, but AFAIK, it is always a far shorter time than foreclosure).
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@Steve_The_Cynic said in -0.5% interest mortgages:
Deflation is generally regarded as a bad thing by modern economists because it discourages current consumer spending. (Why spend now? Next year I can get more for the same money...)
Which has never made any sense to me, given that the majority of consumer spending is driven by need and not by "perfectly rational purely economic decisions." (ie. if I think that the price of food is going to be cheaper next month, so what? It's not like I can go without eating for a month! If I think that the price of housing is going to be lower next year... how does that change anything for my roof-over-the-head-providing needs in the intervening months? And so on.)
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Shhhh. It's considered rude to remind economists that the real world doesn't match their models.
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@Mason_Wheeler said in -0.5% interest mortgages:
@Steve_The_Cynic said in -0.5% interest mortgages:
Deflation is generally regarded as a bad thing by modern economists because it discourages current consumer spending. (Why spend now? Next year I can get more for the same money...)
Which has never made any sense to me, given that the majority of consumer spending is driven by need and not by "perfectly rational purely economic decisions." (ie. if I think that the price of food is going to be cheaper next month, so what? It's not like I can go without eating for a month! If I think that the price of housing is going to be lower next year... how does that change anything for my roof-over-the-head-providing needs in the intervening months? And so on.)
Fair point. I wasn't as clear as I should have been. I meant what's called "discretionary" spending, i.e. buying things that aren't necessities. "The old TV is still working well, so I'll put off the upgrade until next year when even if the new one won't be any better, it will be cheaper because of the deflation," that sort of thing.
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@boomzilla said in -0.5% interest mortgages:
@anonymous234 said in -0.5% interest mortgages:
But if the bank technically owns the house, and the contract says the house is the only collateral needed for the debt, then it seems like you should be able to reject it when it's convenient.
In the US you could file for bankruptcy to discharge the debt, but that's not exactly a get out of debt free card.
In English law, it renders the debt impossible to collect if the "bankrupt person"(1) doesn't have the assets to cover it. The debt isn't forgiven, mind you, just not collectable.
(1) This appears to be a specific legal term - I once filed a creditor's petition for someone's(1a) bankruptcy(2), and at the final hearing, the judge said, "You are now a bankrupt person," rather than, "You are now bankrupt."
(1a) Not my own, obviously.
(2) No, I'm not going to tell you the story behind that.
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@mikehurley said in -0.5% interest mortgages:
@dcon said in -0.5% interest mortgages:
@El_Heffe said in -0.5% interest mortgages:
@anonymous234 said in -0.5% interest mortgages:
@dkf said in -0.5% interest mortgages:
unable to afford to sell
Surely it's always better to sell low than to hold on and sell even lower?
The problem comes when the house is worth less than what you owe. For example:
You owe $100,000 but the most you can sell the house for is $90,000.
So, you will have to pay $10,000 in order to sell the house.
But you don't have $10,000.I remember hearing about additional issues...
- bank "forgives" that 10,000.
- IRS treats that as income and taxes it.
if the bank takes the collateral instead of payment, does that mean the outstanding debt is forgiven? I would think not since the collateral is presumably an acceptable replacement when non-payment happens.
It seems to depend on where you live, and especially whether trying to
collectsqueeze the remainder is profitable.-
In Finland the debt is valid for forever, and if you ever get a job and/or come to some money, the debt-owner gets notified so they can come knock on your door. Combine with a steeply progressive income-tax, and anyone sunk to a debt-hole is likely to stay there.
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In the U.S. it's possible to commit personal bankruptcy, so banks are more likely to just write off the debt. But as stated earlier, the tax-man may find this interesting.
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In the Koreas and some other parts of Asia, it's even possible to inherit a debt by forgetting to waive inheritance rights ASAP. While in most of the western world the system usually automatically just bankrupts the estate. So, debt is forever. also, debt-slavery is a thing in Korea.
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In islamic countries, mortgaging may be technically forbidden by the quran, so the workaround is buying a house in installments. As a side-effect, defaulting can't cause the loss of anything but the house, since otherwise it would be "mortgaging", which is "not allowed". (Though IANAL and varies a lot by country, judge, and the debtor's registered religious affiliation.)
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@Steve_The_Cynic said in -0.5% interest mortgages:
it discourages current consumer spending. (Why spend now? Next year I can get more for the same money...)
Negative interest sounds great when you think about borrowing money, but what about a savings account? Would people be inclined to let their money sit there and shrink over time?
Personally I'd be more inclined to either spend it, or invest it, because leaving it sat there losing money doesn't seem like a good idea.
It only makes sense to let your money sit around in an account when the interest rates are pretty high. Otherwise your money is sat doing nothing, and you're missing out on potential profit that you could be making from it.
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@DoctorJones said in -0.5% interest mortgages:
Negative interest sounds great when you think about borrowing money, but what about a savings account? Would people be inclined to let their money sit there and shrink over time?
Most savings accounts have an interest so low that the inflation is multiple times higher, so the money will have less and less worth even if it's a slightly larger number.
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@DoctorJones said in -0.5% interest mortgages:
@Steve_The_Cynic said in -0.5% interest mortgages:
it discourages current consumer spending. (Why spend now? Next year I can get more for the same money...)
Negative interest sounds great when you think about borrowing money, but what about a savings account? Would people be inclined to let their money sit there and shrink over time?
Personally I'd be more inclined to either spend it, or invest it, because leaving it sat there losing money doesn't seem like a good idea.
It only makes sense to let your money sit around in an account when the interest rates are pretty high. Otherwise your money is sat doing nothing, and you're missing out on potential profit that you could be making from it.
But if there is deflation, if I leave the money in a current (checking) account with no interest, it still becomes more valuable over time (the amount that buys 100 bottles of beer today will buy 101 next year, that kind of thing). That's (part of) why deflation makes economists nervous. Disinflation (yes, that's a word) is less worrying, apparently, because all it means is that the price-growth inflation is slowing, and in particular, it isn't a synonym for deflation.
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@Steve_The_Cynic said in -0.5% interest mortgages:
@DoctorJones said in -0.5% interest mortgages:
@Steve_The_Cynic said in -0.5% interest mortgages:
it discourages current consumer spending. (Why spend now? Next year I can get more for the same money...)
Negative interest sounds great when you think about borrowing money, but what about a savings account? Would people be inclined to let their money sit there and shrink over time?
Personally I'd be more inclined to either spend it, or invest it, because leaving it sat there losing money doesn't seem like a good idea.
It only makes sense to let your money sit around in an account when the interest rates are pretty high. Otherwise your money is sat doing nothing, and you're missing out on potential profit that you could be making from it.
But if there is deflation, if I leave the money in a current (checking) account with no interest, it still becomes more valuable over time (the amount that buys 100 bottles of beer today will buy 101 next year, that kind of thing). That's (part of) why deflation makes economists nervous. Disinflation (yes, that's a word) is less worrying, apparently, because all it means is that the price-growth inflation is slowing, and in particular, it isn't a synonym for deflation.
That makes sense, but when talking about negative interest rates, coupled with deflation, I wonder at what point it's not worth keeping your money in an account any more. At some point it'd be worth keeping physical cash in a safe, as negative interest isn't applied to physical cash, so keeping it all in physical form, whilst also benefiting from deflation, could be the best option.
A friend of mine sent me this article last night, I thought it was an interesting read...
But this leads to other questions. The amount of paper fiat in circulation is dwarfed by the amount of digital fiat. What if everyone wants paper cash – because it’s more valuable – and there’s not enough to go around?
In the past, when gold was still part of the monetary system, the US government suspended convertibility and banned ownership of the yellow metal when demand for gold threatened to undermine the banking system. Could the same thing happen to cash?
Firstly, in a world where fiat currency is mostly digital and also prone to aggressive and overt manipulation or confiscation by governments, you can start to see why something like bitcoin (which is neither backed, nor manipulated, by a government or central authority) might grow more popular.
Secondly, you can see why an asset like gold, which used to be part of the monetary system, and which is also not dependent on a government or central authority for its value, is also more attractive in this kind of world.
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@Mason_Wheeler said in -0.5% interest mortgages:
If I think that the price of housing is going to be lower next year... how does that change anything for my roof-over-the-head-providing needs in the intervening months?
You'd rent an apartment instead of buying one. See @acrow talking upthread about doing just that, except going one step further - selling an apartment he already has.
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@DoctorJones said in -0.5% interest mortgages:
But this leads to other questions. The amount of paper fiat in circulation is dwarfed by the amount of digital fiat. What if everyone wants paper cash – because it’s more valuable – and there’s not enough to go around?
The interesting thing is that this was true even when the physical currency wasn't fiat. Here, I'm talking about the time when the physical currency was either the actual money (gold or silver coins, bricks of salt, cowrie shells, certificates for future tax revenues, etc.) or a paper certificate that stood for a stock of the physical asset stored somewhere.
It's worth noting that second part, about the paper certificate. Let's go back to 17th Century England, where the currency was, like today, the pound Sterling. A pound (of money) was exactly a pound of Sterling (925 fine) silver. In the centre of Oxford, there's a small museum where they have an actual 17th Century pound coin, and it is, indeed, a pound of sliver. That makes a honking big coin, and that bigness is at the heart of why we have banknotes. The notation "I promise to pay the bearer on demand the sum of ..." on every British banknote is a throwback to that time, and the "sum of ..." was a sum of one / five / ten / etc. pounds of actual Sterling silver.
So, let's look at what happens when we first open a bank. The bank is there to serve as a place to store those honking big coins, and in return, it gives us those paper certificates (bank notes). So I deposit my coins and get my banknotes and I use them as currency. While I'm doing that, the bank lends (most, let's say 90%(1), of) that silver to someone else, who deposits it in a bank. Now there is still 100 pounds of silver in the banking system, but 190 pounds of banknotes. This cycle continues until (in the limiting large-economy case), it converges at a multiplier of 1/(10%) = 1/0.1 = 10. That is, for every 100 pounds of physical currency originally deposited, there are banknotes with a face value, in total, of 1000 pounds.(2)
Everyone trusts that if he needs (small amounts of) physical currency, he will be able to get it, and most of the time, nobody bothers with it because the banknotes are so much easier to use than coins that weigh a pound (weight) per pound (money).
Many moons ago, I explained this to the late Mrs Cynic, and she was horrified.
(1) That figure of 90%, or more specifically the 10% left behind, is technically termed the "reserve limit", and it's a critically important part of a banking system. Yes, the central bankers can use it to manipulate the money supply, but in general they don't because the system doesn't react quickly or easily to changes in the reserve limit.
(2) That 10:1 excess is why bank runs are so terrifying. There are banknotes that claim that people can withdraw 1000 pounds of silver, but the banks only hold 100 pounds. What happens when everyone tries to claim "their" silver?
Note that in all the above, the currency is not fiat, but a similar line of reasoning applies to fiat currencies.
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@acrow said in -0.5% interest mortgages:
In the Koreas and some other parts of Asia, it's even possible to inherit a debt by forgetting to waive inheritance rights ASAP.
Also Poland until a few years ago. Technically, there has been the option of "inheritance with benevolence of inventory" (I know, translation sounds very stupid, but in original it's only slightly better), where you only inherit debts up to the value of your part of inheritance - but it wasn't the default; you actually had to inform the court that you want to take this option (which is especially difficult when you don't know that there's anything to inherit for you; there's a time limit for filing the declaration, kinda like there's time limit to dispute fatherhood when a child is born - coincidentally, both are 6 months IIRC). But they've recently changed it so "benevolence of inventory" is the default now.
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@Steve_The_Cynic said in -0.5% interest mortgages:
What happens when everyone tries to claim "their" silver?
Cyprus 2013. An already forgotten reminder that money in the bank isn't exactly yours.
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@Gąska said in -0.5% interest mortgages:
@Steve_The_Cynic said in -0.5% interest mortgages:
What happens when everyone tries to claim "their" silver?
Cyprus 2013. An already forgotten reminder that money in the bank isn't exactly yours.
Apt, but similar events are liberally strewn across the history of banking, and in countries we'd normally think of as less ... fragile, let's say, than Cyprus. Like, you know, the US.
The problem is that the money in the bank is yours, but at the same time it's also mine and his and hers and theirs and ...
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@Steve_The_Cynic said in -0.5% interest mortgages:
The problem is that the money in the bank is yours
Well, in that particular case, the bank run was due to the government confiscating 9% of every bank account in the country to fix the national budget.
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@Steve_The_Cynic said in -0.5% interest mortgages:
That 10:1 excess is why bank runs are so terrifying. There are banknotes that claim that people can withdraw 1000 pounds of silver, but the banks only hold 100 pounds. What happens when everyone tries to claim "their" silver?
The same thing that happens on Linux when all processes try to claim "their" memory
Filed under: Overcommit is a disaster waiting to happen
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@Gąska said in -0.5% interest mortgages:
@Mason_Wheeler said in -0.5% interest mortgages:
If I think that the price of housing is going to be lower next year... how does that change anything for my roof-over-the-head-providing needs in the intervening months?
You'd rent an apartment instead of buying one. See @acrow talking upthread about doing just that, except going one step further - selling an apartment he already has.
Which is my point: you're still spending a non-trivial amount of money each month on housing.
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@Zerosquare said in -0.5% interest mortgages:
@Steve_The_Cynic said in -0.5% interest mortgages:
That 10:1 excess is why bank runs are so terrifying. There are banknotes that claim that people can withdraw 1000 pounds of silver, but the banks only hold 100 pounds. What happens when everyone tries to claim "their" silver?
The same thing that happens on Linux when all processes try to claim "their" memory
Filed under: Overcommit is a disaster waiting to happen
I've been saying that since forever, and UNIX people here tell me I'm wrong and would otherwise get a constantly trashing system.
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@Mason_Wheeler not quite. You're only spending $1000/month at once, whereas when you buy, you spend $300,000 - your $30,000 and the bank's $270,000 - all at once. Very different. Not to mention the money now steers away from the building industry, which has all sorts of butterfly effects.
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@topspin said in -0.5% interest mortgages:
@Zerosquare said in -0.5% interest mortgages:
@Steve_The_Cynic said in -0.5% interest mortgages:
That 10:1 excess is why bank runs are so terrifying. There are banknotes that claim that people can withdraw 1000 pounds of silver, but the banks only hold 100 pounds. What happens when everyone tries to claim "their" silver?
The same thing that happens on Linux when all processes try to claim "their" memory
Filed under: Overcommit is a disaster waiting to happen
I've been saying that since forever, and UNIX people here tell me I'm wrong and would otherwise get a constantly trashing system.
Remember, these are the same people who willingly write shell scripts.
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@Gąska said in -0.5% interest mortgages:
@Mason_Wheeler not quite. You're only spending $1000/month at once, whereas when you buy, you spend $300,000 - your $30,000 and the bank's $270,000 - all at once. Very different.
And you also incur $270,000 in debt and spend decades digging yourself out. If you're going to count that money, you have to count it on both sides of the ledger! It's important to remember that debt is future economic activity pulled forwards, which is then balanced out in the future with less economic activity.
Not to mention the money now steers away from the building industry, which has all sorts of butterfly effects.
So? This doesn't mean less economic activity; it means different economic activity. Instead of going to the building industry, that money will go to some other industry instead.
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@Mason_Wheeler said in -0.5% interest mortgages:
So? This doesn't mean less economic activity; it means different economic activity. Instead of going to the building industry, that money will go to some other industry instead.
Very true. Which is the best industry to spend that in? Well, it's almost certainly not real estate, but beyond that, opinions vary hugely. Ask a bunch of economists the question (preferably in a semi-social setting) and sit back and watch as the arguments rage with little to no further input from you.
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@dkf said in -0.5% interest mortgages:
Which is the best industry to spend that in?
That's a highly subjective question that depends entirely on the nuances of your definition of "good" in this particular context.
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@Mason_Wheeler said in -0.5% interest mortgages:
@Gąska said in -0.5% interest mortgages:
@Mason_Wheeler not quite. You're only spending $1000/month at once, whereas when you buy, you spend $300,000 - your $30,000 and the bank's $270,000 - all at once. Very different.
And you also incur $270,000 in debt and spend decades digging yourself out.
Yes. But the money is already out there in the pockets of estate traders/building companies, which in turn gets spent on other things. When you look just at yourself, the decision has little effect - but when enough people do it all at once, the effects on the economy as a whole are very big. Not necessarily negative - but definitely big. Which is why the governments try their hardest to avoid it. Whether it's good or bad is another topic, one that I have too little knowledge of economics to engage in.
Also, when you decide to rent instead of buying, you expect the prices will drop more than you spend on rent. -5% Y2Y and you're already slightly ahead.
If you're going to count that money, you have to count it on both sides of the ledger! It's important to remember that debt is future economic activity pulled forwards, which is then balanced out in the future with less economic activity.
Except more money now means more investments now, which means more wealth in the future compared to if the investments weren't made.
Not to mention the money now steers away from the building industry, which has all sorts of butterfly effects.
So? This doesn't mean less economic activity; it means different economic activity.
Yes. And just like the governments are scared shitless of different climate (no matter how exactly it's different), they're also scared shitless of different economic activity (no matter how exactly it's different).
People don't care about deflation in the slightest. Only governments do. But they care about it very deeply.
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@Gąska said in -0.5% interest mortgages:
People don't care about deflation in the slightest. Only governments do. But they care about it very deeply.
Yes, but they care about it for a very different reason than the nonsensical "it will cause people to spend less money in the future" that's put forward as an excuse. They care about it for a reason that actually makes sense: governments are in debt.
If you aren't in debt, you want deflation, because it means that the money you have saved up will be worth more in the future. If you are in debt, you don't want deflation, because it means that the money you owe will be worth more in the future. (Yes, this is an oversimplification that makes some big assumptions. But as a broad-strokes argument, it's broadly valid.) Instead, you want inflation, which makes your negative balance less painful.
ISTM the econo-babble about "reduced future spending" is mostly a smokescreen to cover up the implications of this simple fact.
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@Mason_Wheeler yes, of course. But reduced economic activity is a factor too. Because economic activity does reduce during deflation - especially the million dollar investments by those who have million dollars to spare. And that means less tax revenue.
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@Steve_The_Cynic said in -0.5% interest mortgages:
@Gąska said in -0.5% interest mortgages:
@Steve_The_Cynic said in -0.5% interest mortgages:
What happens when everyone tries to claim "their" silver?
Cyprus 2013. An already forgotten reminder that money in the bank isn't exactly yours.
Apt, but similar events are liberally strewn across the history of banking, and in countries we'd normally think of as less ... fragile, let's say, than Cyprus. Like, you know, the US.
The problem is that the money in the bank is yours, but at the same time it's also mine and his and hers and theirs and ...
That 10:1 isn't the end of it either. According to one economy blog I read, inflation and/or interest make it worse over time, since they increase the amount of total debt, while the amount of
physicalreal money stays ... um, constant? So even if all debts were paid back in the appropriate order, there would necessarily be a default.
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@Mason_Wheeler said in -0.5% interest mortgages:
@Gąska said in -0.5% interest mortgages:
@Mason_Wheeler not quite. You're only spending $1000/month at once, whereas when you buy, you spend $300,000 - your $30,000 and the bank's $270,000 - all at once. Very different.
And you also incur $270,000 in debt and spend decades digging yourself out. If you're going to count that money, you have to count it on both sides of the ledger! It's important to remember that debt is future economic activity pulled forwards, which is then balanced out in the future with less economic activity.
Right, but remember, it was that capital that you borrowed that the economists wanted out doing something instead of sitting around.
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@acrow said in -0.5% interest mortgages:
@Steve_The_Cynic said in -0.5% interest mortgages:
@Gąska said in -0.5% interest mortgages:
@Steve_The_Cynic said in -0.5% interest mortgages:
What happens when everyone tries to claim "their" silver?
Cyprus 2013. An already forgotten reminder that money in the bank isn't exactly yours.
Apt, but similar events are liberally strewn across the history of banking, and in countries we'd normally think of as less ... fragile, let's say, than Cyprus. Like, you know, the US.
The problem is that the money in the bank is yours, but at the same time it's also mine and his and hers and theirs and ...
That 10:1 isn't the end of it either. According to one economy blog I read, inflation and/or interest make it worse over time, since they increase the amount of total debt, while the amount of
physicalreal money stays ... um, constant? So even if all debts were paid back in the appropriate order, there would necessarily be a default.If the currency is "fiat" (these days, pretty much all of them are(1)), the amount of physical currency isn't fixed. Quantitative Easing isn't exactly the same as printing more banknotes, but it isn't far from it.
(1) Including the US dollar, ever since 1971.
How negative interest rates could spell the death of cash
