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Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]
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Samizdata quote of the day On the ECB’s own website, they say that negative interest rates will “benefit savers in the end because they support growth and thus create a climate in which interest rates can gradually return to higher levels.”
I’m not sure a more intellectually dishonest statement could be made; they’re essentially telling people that the path to prosperity is paved in debt and consumption, as opposed to savings and production. These people either have no idea how economies grow and prosper, they’re outright liars, or they’re completely delusional.
– Simon Black
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‘In the end’ can mean anything, including austerity measures so that sound finances are eventually restored. It is hard to trust the Eurocracy to get it right, but their longterm planning might prove correct. Just so long as no-one realises just how far into the future they might mean. So don’t tell any European, o.k.? Or the whole Ponzi scheme (borrowing from future growth) will fall apart.
My problem with higher interest rates is that savers get big rewards simply for the act of saving.
I think the big rewards should go to doers, strivers, risk takers, entrepreneurs.
You seem a bit confused Fred. If you ‘save’ your money by putting it in a box under your bed, what ‘reward’ are you getting exactly? None other than a warm fuzzy glow and a somewhat different set of risks. Now if you put your money in a bank, which is another way of saying “loan your money to a bank”, you are indeed going to get some ‘reward’. Why do you think that is?
Perry, for heaven’s sake, you of all people making straw man arguments?
OK then, I stipulate ‘saving’ means the highly risky, entrepreneurial, striving acts of not spending and then taking the money to the bank, there to deposit it into a government guaranteed account. Lending it to a bank when the debt is guaranteed is not really lending. No risk. Zero. Other than government perfidy and incompetence but that is unavoidable.
How is that worth of a big return? Or even any return?
Now buying stocks, that is risky and deserves a reward if the risk is calculated and successful.
“You should be glad things suck a lot. That way, when they go back to only sucking somewhat, it’ll be an improvement!”
Fred: Government guarantees mess this up, but outside of bank accounts, this is well-understood as things stand. Lenders get paid before investors, so they face less risk, but they also get less reward.
Government guarantees are a terrible idea, but saying savings should be discouraged is an even worse idea. Government should not be setting interest rates *at all* and if you think the natural market rate of interest would be zero, well, I disagree.
Simon Black is correct – and the same is true not just of the European [Union] Central Bank, but also the Bank of England, Bank of Japan and (yes) the Central Bank of Switzerland.
There is no point in using fluffy language – these people (the Central Bankers and the rest of the establishment elite) are vermin – utter and complete swine.
It would be good if the people of Switzerland vote (in the upcoming referendum) for a return to covering a certain percentage of Swiss Francs with physical gold – a practice abolished by the new P.C. Constitution of Switzerland (introduced some years ago). I doubt it will happen (the international establishment elite will do just about anything to prevent their FRAUD, the-gold-that-is-not-there, being exposed), but I hope it does.
“they’re essentially telling people that the path to prosperity is paved in debt and consumption, as opposed to savings and production” Simon Black
“The sole purpose of production is consumption” Adam Smith
Discuss?
Which means you need production and savings, in order to have sustainable debt and consumption. His objection is some people are fixated on only one side of that. Not enough consumption? Oh noez! Run the printing presses! Slash the interest rates!
Negative interest rates tell people that putting cash money into savings is bad. You are better off buying stock, bonds, real estate or some other investment vehicle. Or, alternatively, putting the money in your mattress.
The important thing: negative interest rates discourage spending on goods and services. They tell you to put off any expenditures that you came, because your money will be worth more tomorrow. Deflation at its best.
Re the Swiss (having just voted on this issue): The underlying idea – a step in the direction of a gold standard – may be good, but the present initiative is idiotic. It would essentially require our government to buy the entire world’s production of gold for one to two years, which would massively drive up the price of gold and cost us far more than that gold would actually be worth. Then the initiative would prevent the national bank from ever selling that gold no matter the reason, which kind of defeats the purpose of having it. Had someone with a brain formulated the initiative intelligently, it would have a chance of passing. In its current form, there is (thankfully) little chance.
The problem is that when interest rates are set politically rather than by markets, they do not really tell people anything useful or truthful about the economy at all.
Negative interest rates effectively tell people that money has no value. If I put money in a savings account (ie lend it to the bank), but then have to pay them, then clearly they have no need for my money, it is effectively worthless to them. It is a bit like when you rent a storage unit to store your stuff. Your stuff is of no value to the storage company, they charge you to keep it there. If you don’t pay the rent, they auction your stuff off and make trashy TV programmes about it.
Given that modern central banking theory seems to be that money is a series of digital entries that they can create at will, that is probably how they do see money.
Money is a transportable standard of value i.e. an amount of silver coinage will buy you a bushel of wheat in different locations or turnips etc.
Bradley13, government-imposed negative interest rates are not the same thing as deflation (although market-generated negative interest rates could be one consequence of deflation under certain circumstances). And in fact, at present you lucky Europeans have the best of both worlds: negative interest rates (so you’re charged for the privilege of saving), and inflation (so your money will be worth less in the future). You may have finally achieved political nirvana!
I do appreciate the sophistry of trying to convince people that negative interest rates would somehow be beneficial for them. Just recently I saw something similar here in the South Carolina: Our county was voting on a proposed increase in the sales tax, which was allegedly to be used for road maintenance (it would have actually done no such thing, but that’s beside the point). One of the ads I heard in support of the proposal asserted that the tax increase would actually save me money, because better roads would mean less wear and tear on my car and tires. Nice try, Binky. We may be yokels here, but not all of us fell off the turnip truck last night. (Incidentally, the proposal failed by about 2 to 1. Hopefully you guys will fare as well.)
Interesting discussion.
I still do not understand why saving, an economic activity, should be encouraged at all. Why should any economic activity be encouraged? If a man desires to save more than he desires to spend, he will do so. Why does anyone see good in persuading him to change his desires, much less forcing him with state seizure enforced savings? Why does anyone think it will work? I am unaware of any successful attempt to change the desire to save by a non monetary encouragement except in extra-ordinary circumstances like war. So we spend money to buy savings so business can rent it cheap, or seize the money at the point of a figurative gun and let the government manage it. Doesn’t sound clever to me.
I long ago learned that nobody has any idea at all what is an economic activity that leads to “good”, especially where there is no general agreement as to what is good. The best we can do is leave the market alone and suppress the thieves, crooks, fraudsters, politicos and bureaucrats. But I repeat myself.
That is kind of my point Fred. I am against any state manipulation of the economy. I do not think a central bank should even exist, let alone be setting interest rates, and I think you will find that negative interest rates would simply never happen in a free market. To actually force interest rate to zero is actively encouraging people not to save and that is a grave mistake. The market, not the state, should be allowed to send signals that people use to decide if they will save or spend or use their notes as toilet paper or whatever.
@Fred Z
” saving, an economic activity”
Saving is, of course, one person’s deferred consumption. But all saving is, absent the hoarding of articles of value in the cellar*, some other person’s consumption. Because that’s where savings end up. As another person’s loan.
So advocating saving is really just advocating consumption in one place rather than another. Presumable one the advocate prefers.
*I’d need some convincing putting currency under the mattress does actually take wealth out of circulation. Currency being promissory notes. Even piles of gold withdraw those piles of gold from the total market of piles of gold. Making other piles of gold incrementally more valuable.
Amen! It is not intuitive, hence many people miss this, but it is the key fact about savings placed in a bank: it is really a loan to that bank. That is why they pay you interest! It makes your money their money, you just have the right to ask for it back. But until you do, it really is their money, and they put it to work loaning it out to other people who then make shit and do stuff with it 😉
Remember this guy?
I would agree that some forms of saving are deferred compensation, but not all, not by a long shot. Instead, I would say that saving is an activity that is engaged in by people who try to prepare for their life in the future. It is a way for them to try to deal with uncertainty and also to try to change the way they lead their lives. In some instances, it allows them to purchase something that they cannot buy with their current cash flow, in other cases it serves as a reserve for the time when they are sick, retired, or just decide to stop working for a living. Borrowing money also serves the same interests, but in a different way. The two go together.
The concept that money/lending/interest/banking is evil is very old, and modern leftists really beat it to death, but they don’t have any real argument against it, other than the old canard that it is not productive, but just a drain on productive society. I have a good engineering analogy: In an engine there are lots of parts that go up and down and round and round, in order to produce real work/motion, to accomplish some goal. You can say that all of those parts that actually move, or that support the parts that move, really do something to make the final action happen.
What about the lubricating oil in the machine? It does nothing to make the parts actually go round and round, so is it really unnecessary or just an evil contrivance of lubricating engineers to enrich themselves?
In actuality, lubricating oil performs a lot of functions that are necessary for the parts to go round and round. (1) It lubricates the parts, preventing friction that causes the parts to damage themselves; (2) It removes heat that the parts generate, so that they do not expand too quickly and stop moving; (3) It serves as a conduit for information in hydraulic control systems so that the machines do not run too fast or too slow, and so that they respond appropriately to change in the load.
Money acts like lubricating oil. It ensure that all of the parts work smoothly, do not overheat, run at the right speed, etc. Without it, those “productive activities” would literally grind to a halt, as we saw when the banks shut down the money supply to businesses a few years ago. Lubricating oil and money/lending/banking both have considerable value, even if they, themselves, actually produce nothing. This is why people are willing to pay to borrow money, and why it is good that they are people who are willing to defer spending in order to supply capital to others who can use it productively.