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Author Topic: ECB slashes interest rate, reduces deposit rate below zero.  (Read 739 times)
rebuilder
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June 05, 2014, 11:59:10 AM
 #1

http://www.bbc.com/news/business-27717594

Commercial banks will now "receive" negative interest to the tune of -0.1% from the central bank. The ECB is hoping this will get money flowing. This whiffs of an attempt to kickstart a new bubble to cover over the mess the popping of the last one made to me... Thoughts from better educated minds here?

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BldSwtTrs
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June 05, 2014, 12:04:43 PM
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They want to stop the banks from hoarding the cash, and make them loaning it instead. Thereby they hope stopping the contraction of the private debt since it's the contraction of the private debt (i.e. the monetary mass) that causes the deflation.

They probably will fail, but it's a move that makes logical sense.
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June 05, 2014, 12:05:40 PM
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They are trying to balance the debt reduction to money printing ratio  

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June 05, 2014, 12:09:12 PM
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BldSwtTrs: makes sense, however you have to ask yourself why the banks are hoarding, if they are. Presumably their assessment is that investment is too risky at the moment. If that's the case, then ECB is essentially trying to push investment into areas where the risks are higher than investors (banks) would normally feel comfortable with. That's why it smells of an attempt to trigger a bubble yet again to me.

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June 05, 2014, 12:14:43 PM
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BldSwtTrs: makes sense, however you have to ask yourself why the banks are hoarding, if they are. Presumably their assessment is that investment is too risky at the moment. If that's the case, then ECB is essentially trying to push investment into areas where the risks are higher than investors (banks) would normally feel comfortable with. That's why it smells of an attempt to trigger a bubble yet again to me.
Yeah that's a part of the reason why I think that will faill (supply side). But also there is also the fact that people and business don't want to go into debt anymore, you cannot force them to borrow if they don't want to (demand side).

But the ECB and economists are shitting in their pants in front of the deflation risk, so they will try everything to stop it. The Japon is a good example showing that a deflation cannot be stopped no matter what.
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June 09, 2014, 03:10:23 AM
 #6

This is an attempt to cause everyone to take on more risk.

The additional risk starts at the bank level, but in theory escalates to business owners (and corporations) and to the general public.

If banks take on more risky loans then businesses will have a greater incentive to take on more risk (the risk/reward ratio will be different for investing as the cost of money will be lower for them). Businesses taking on more risk will in theory cause incomes of citizens to rise (and spend more and take on more risky investments).

The ECB is attempting to mimic the effects of trickle down economics (lowering tax rates causes more spending/investments, causes more economic growth), the problem is that once the policy is reversed (QE and negative interest rates cannot last forever, if they do then inflation will get out of hand) then the decapitate for risk will shrink rapidly causing asset prices to quickly decline.

How this affect BTC:

with businesses taking on more risk and consumers taking on more risk, more investment will be invested in the BTC economy while it is still very speculative. This will obviously cause the price of BTC to rise. Hopefully this investment will create an infrastructure that would cause BTC to be less of a speculative investment. Hopefully by the time the above policies are reversed BTC will carry sufficiently lower risk so that it's price will not decline to where it is now.

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June 09, 2014, 03:27:04 AM
 #7

http://www.bbc.com/news/business-27717594

Commercial banks will now "receive" negative interest to the tune of -0.1% from the central bank. The ECB is hoping this will get money flowing. This whiffs of an attempt to kickstart a new bubble to cover over the mess the popping of the last one made to me... Thoughts from better educated minds here?


-0.1 is too tiny.

Doubt anyone will even notice. If they are serious, they should set -2% or more.
RoadTrain
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June 09, 2014, 03:28:13 PM
 #8

Another genious attempt at inducing economic activity.
Any smart government would use the greatest power it has - fiscal policy. But it doesn't work for Euro which is a failed project in its current state. Austerity doesn't let government increase budget deficits, which would naturally support the economy. So they're trying to fuel another debt bubble with monetary policy. But it seems the private sector doesn't want to participate.
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June 09, 2014, 04:20:16 PM
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Another genious attempt at inducing economic activity.
Any smart government would use the greatest power it has - fiscal policy. But it doesn't work for Euro which is a failed project in its current state. Austerity doesn't let government increase budget deficits, which would naturally support the economy. So they're trying to fuel another debt bubble with monetary policy. But it seems the private sector doesn't want to participate.


Sound more like an idiotic attempt to me.

Government can not force deeply in debt consumer to spend what they can not afford. Putting the bill on credit is just piling up the problems down the road.

They need to increase interest rate and cut lending. Let people and business go bankrupt and start fresh.


RoadTrain
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June 09, 2014, 06:07:29 PM
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Another genious attempt at inducing economic activity.
Any smart government would use the greatest power it has - fiscal policy. But it doesn't work for Euro which is a failed project in its current state. Austerity doesn't let government increase budget deficits, which would naturally support the economy. So they're trying to fuel another debt bubble with monetary policy. But it seems the private sector doesn't want to participate.


Sound more like an idiotic attempt to me.

Yep, it was sarcasm.
The government can easily improve private sector's balances but instead it focuses on continuing this credit frenzy.
transient858
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June 09, 2014, 06:43:11 PM
 #11

No saving implies no investment into the future as capital cost has negative interest rate.

Smart capital do no aid thief. And negative rate is wholesales robbery.

Ron~Popeil
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June 09, 2014, 07:31:15 PM
 #12

Another genious attempt at inducing economic activity.
Any smart government would use the greatest power it has - fiscal policy. But it doesn't work for Euro which is a failed project in its current state. Austerity doesn't let government increase budget deficits, which would naturally support the economy. So they're trying to fuel another debt bubble with monetary policy. But it seems the private sector doesn't want to participate.


Sound more like an idiotic attempt to me.

Government can not force deeply in debt consumer to spend what they can not afford. Putting the bill on credit is just piling up the problems down the road.

They need to increase interest rate and cut lending. Let people and business go bankrupt and start fresh.



They need to get out of manipulating currency altogether. Their invariably bad decisions affect everyone's quality of life.

Harley997
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June 14, 2014, 01:35:09 AM
 #13

Another genious attempt at inducing economic activity.
Any smart government would use the greatest power it has - fiscal policy. But it doesn't work for Euro which is a failed project in its current state. Austerity doesn't let government increase budget deficits, which would naturally support the economy. So they're trying to fuel another debt bubble with monetary policy. But it seems the private sector doesn't want to participate.


Sound more like an idiotic attempt to me.

Government can not force deeply in debt consumer to spend what they can not afford. Putting the bill on credit is just piling up the problems down the road.

They need to increase interest rate and cut lending. Let people and business go bankrupt and start fresh.



They need to get out of manipulating currency altogether. Their invariably bad decisions affect everyone's quality of life.
Manipulating currency is usually good for the people that is doing the manipulating. The issue is that it is bad for everyone else.

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