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Zero Interest


powerdesal
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http://www.telegraph.co.uk/finance/personalfinance/savings/4077360/Savers-facing-accounts-with-no-interest.html

Am I being somewhat naive, surely savers who get zero interest will immediately withdraw their savings and either put them under the mattress and "spend their seed-corn" or move them to an interest earning account with another institution.

Either way, the zero interest bank will lose, so why do it?

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Hi!

You may remember that in the past countries have also had negative interest.

The important thing is to try to promote the economy. And here low interest rates are vital, although such conditions do mean that foreign wandering capital will move out.

As an individual,  you have to decide, if you want to invest elsewhere, with a risk, or to keep your money under the mattress, with also risks.

Yours,

giantpanda

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[quote user="giantpanda"]   ...  remember that in the past countries have also had negative interest .... [/quote]

 

Remember ?...  When ?... Where?...

Unless it was in a corrupt african country or a country from behind the iron curtain, then I don't remember about negative interest this side of 1958.

Innocently yours [:$] 

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Zero Interest on savings has 2 benefits for the general global economy.  1. the BoE/ECB/Fed will avoid deflation. 2 They can print money at will without causing inflation.

Now I'm going to put my tin-'at on coz.

If 1. happens all you pensions/savings/assets are worth diddlysquat as they will only be worth what someone thinks they are worth in 6 months+ time, ie a LOT less than you think they are worth now. Think, deflation means everything is worth less month on month. If 2 the general global economy keeps functioning, and fingers crossed in 6 months+ time, things get back to what you would consider normal.

On the postive side, despite the UK media coverage, my company (which is at the bottom level of the economic cycle) has had it's best Q4 2008, pre-orders for Q1 2009, on record. As against the worst ever Q4 and Q1 in France and Germany. Sometimes I look at the financial numbers on my desk and wonder where the UK media gets it's stories. Presumeably they've never heard of TMD Friction going bust in Germany (50,000 jobs), SEAT shutting from January to July 2009, Sealdyne in France bust (15,000 jobs), Renault shutting the Sandouville Laguna plant for 4 months, CAMIF, etc. I see the UK stories, and think, SO WHAT, look around you, my job is to avoid losing the company's money, and at the moment I have sleepless nights over France and Germany.

Bear in mind Retail is the last to suffer in an economic down turn, so big stories like Woolworth's is the sign of the upturn coming. Pity the poor b*****rs in Germany and France who rely on other countries buying stuff off them, rather than domestic consumers, just who is going to buy the stuff they make. Anyone want to buy a BMW at the moment?

Anything that kickstarts the global economy is good for me, and my company, and it's 150,000 employees. Let's try 0% interest, I don't care if I've got to pay for it for the rest of my life (I'm 38). Right now, we are looking at global economic melt down. Anyone want Hitler and his ilk back? Wake up and smell the coffee, it really is serious.

And I wish you all a wonderful 2009.

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[quote user="Missy"]

[quote user="giantpanda"]   ...  remember that in the past countries have also had negative interest .... [/quote]

 

Remember ?...  When ?... Where?...

Unless it was in a corrupt african country or a country from behind the iron curtain, then I don't remember about negative interest this side of 1958.

Innocently yours [:$] 

[/quote]

Actually, Switzerland I believe.

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[quote user="velcorin"]

On the postive side, despite the UK media coverage, my company (which is at the bottom level of the economic cycle) has had it's best Q4 2008, pre-orders for Q1 2009, on record. As against the worst ever Q4 and Q1 in France and Germany. Sometimes I look at the financial numbers on my desk and wonder where the UK media gets it's stories.

[/quote]

My brother's company is the same - he has order books full for the next 18 months - 2 years...and just had his best ever trading year.

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I have little sympathy for greedy UK banks, or bankers but Gordon et al have demanded from the banks that they bail out  a 12%  preference dividend on the monies borrowed. 

This is to be paid by the banks until the money is repaid.  This 12% can only restrict the banks' ability to lend or their ability to increase interest rates to savers.

Tegwini

 

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[quote user="tegwini"]

I have little sympathy for greedy UK banks, or bankers but Gordon et al have demanded from the banks that they bail out  a 12%  preference dividend on the monies borrowed. 

This is to be paid by the banks until the money is repaid.  This 12% can only restrict the banks' ability to lend or their ability to increase interest rates to savers.

Tegwini

 

[/quote]

Agreed.  And the FSCS charge is being levied on building societies and smaller financial institutions who have not contributed to the mess but are still expected to pick up the tab. 

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[quote user="velcorin"]

Zero Interest on savings has 2 benefits for the general global economy.  1. the BoE/ECB/Fed will avoid deflation. 2 They can print money at will without causing inflation.

Now I'm going to put my tin-'at on coz.

If 1. happens all you pensions/savings/assets are worth diddlysquat as they will only be worth what someone thinks they are worth in 6 months+ time, ie a LOT less than you think they are worth now. Think, deflation means everything is worth less month on month. If 2 the general global economy keeps functioning, and fingers crossed in 6 months+ time, things get back to what you would consider normal.

[/quote]

With deflation, pensions and assets would be worth less as prices fall but surely savings would be worth more? Inflation eats in to the real worth of savings.

Or am I being thick? Feel free to elaborate. I realise that you are talking about the general global economy and not my few quid in the bank but...

Danny

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[quote user="NormanH"]I thought that the problem was a lack of availability of money or credit for businesses or loans.

If interests rates were put UP wouldn't that tempt people with cash to put into savings, thus making it available?

[/quote]

NormanH

banks don't lend their depositors' money to anyone, if that is what you meant. They keep it and lend fictitious money based on the money they supposedly have.

For anyone who wants to know how banks really work and where money comes from

47 minute film - Money as Debt I found this fascinating.

Danny

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Definitely not thick! You are correct, cash savings would actually increase in value. I certainly could have been clearer, I was referring to Pension Funds companies. You correctly make the point about illiquid assets depreciating in value, what happens in the longer term to Pension Funds? The Japanese had the carry trade to offset their local deflation problem, but if it is a global problem? Nobody borrows money (even at 0%) as the repayment cost increases by the rate of deflation, and the asset increases it's rate of depreciation, less security and benefit. Nobody buys anything because tomorrow they know it will be cheaper, unemployment goes up to Great Depression standards, higher government borrowing and taxes. A wonderful deflationary spiral, global commerce grinds to a halt.
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