BoE and negative interest rates

[5huggy]

5 hours ago, Martlet said:

The base rate and QE are targeted at institutions and large funds, not retail investors.

Quite right !👍

That's to come further down the timeline IMHO!

[SilverApe]

12 hours ago, C60 said:

 

@SilverApe - surely if a savings account went into negative rate, the bank is effectively charging you to hold your savings, so how would it have an opposite effect on savers? Unless the bank takes a proportion of any gross interest owed on the savings account? The details surrounding how banks would administer negative rates isn’t clear at the moment.

Sorry for not being able to quote you individually and instead tag you, using the forum on an iPhone whilst travelling is a bit different to a pc at home 😅

 

I think you may have missed what I said previously. We could have real negative rates if we get 1% interest at the bank but then inflation at 5%, then real rates are -4%. It depends what you mean by negative rates, because any interest rate is caluculated after inflation. We may never see a negative number but inflation may make it a reality.

[Melon]

10 hours ago, HerefordBullyun said:

Both

https://www.nytimes.com/2016/09/21/business/international/japan-boj-negative-interest-rates.html

This isn't about charging individual savers negative interest. It's about the central bank charging banks a negative rate to encourage them to lend more money and boost the economy. 

5 hours ago, dicker said:

I work for Investment Banks in a consultancy capacity.

The ones I work prepared for negative rates about 18 months ago (system changes, model changes etc).

I am not a retail banking expert but I suspect that it would not really work (from a PR perspective) for banks to charge customers for account balances.

Best

Dicker

Yes I agree. It wouldn't work from a retail perspective. The retail banks may need to be prepared for negative rates potentially from the central bank, but they won't charge customers to save with the bank. Rates may however get really low. 

[Melon]

46 minutes ago, SilverApe said:

I think you may have missed what I said previously. We could have real negative rates if we get 1% interest at the bank but then inflation at 5%, then real rates are -4%. It depends what you mean by negative rates, because any interest rate is caluculated after inflation. We may never see a negative number but inflation may make it a reality.

If you factor in inflation we've probably been 'negative' loads of times in recent years. But that's a drastically different scenario compared to being asked to pay the bank a % of your savings just to keep your money there - aka savings interest rate goes negative. 

[MancunianStacker]

Retail banks may pay no interest but charge you a monthly account management fee instead. A lot of people are already doing this for a package Of benefits you get with it. The cartel could agree to charges on all accounts based on a % of the average monthly balance etc 

[Melon]

23 hours ago, MancunianStacker said:

Retail banks may pay no interest but charge you a monthly account management fee instead. A lot of people are already doing this for a package Of benefits you get with it. The cartel could agree to charges on all accounts based on a % of the average monthly balance etc 

Won't happen. Nobody wants to give up market position for an account fee. There's countries in the world where this is the norm (and arguably should be the norm - isn't it odd how we all assume banking should be a free service?), but it's not accepted in the UK public opinion. Packaged accounts where you're paying for benefits is OK of course, as it's optional. 

[Cornishfarmer]

On 16/06/2020 at 17:02, dicker said:

I am not a retail banking expert but I suspect that it would not really work (from a PR perspective) for banks to charge customers for account balanced

I worked on Oz 20 odd years ago and was charged 30c for every transaction on card. Could see that kind of thing happening if neg rarest came in.     If all the banks did this you wouldn’t have any choice and lot of people just tap card or use phone so wouldn’t even notice 

[AppleZippoandMetronome]

On 16/06/2020 at 22:27, MancunianStacker said:

Retail banks may pay no interest but charge you a monthly account management fee instead. A lot of people are already doing this for a package Of benefits you get with it. The cartel could agree to charges on all accounts based on a % of the average monthly balance etc 

This is how things are in Canada. Generally speaking unless you have a youth, senior, student or some other account with exepmtions you have to pay a monthly fee to access your cash. There are tiers that give you x amount of transactions and you pick the tier appropriate for the amount of transactions you see yourself doing/month. Most banks will offer a free service but that free service will generally include something like two transactions/month then you pay per transaction afterwards. So you get to pay using your debit card twice then you'll have to pay 50 cents or whatever the fee is each additional time you use your card.

You could imagine how pleased I was to see how things worked over here when I moved over and opened my first UK bank account 12 years ago.

[sstrrs]

I was going to mention what @Silverape

[sstrrs]

I was going to mention what @SilverApe said about "real rates" and what @MancunianStacker said about fees to emulate negative rates.

…since we're mostly talking about the UK, wasn't there some kind of issue a while ago where retail banks actually didn't want any of the market share @Melon says they wouldn't want to give up? i.e. they didn't want to offer free current accounts to the masses but were kind of forced to by the govt as it was seen as an important public service? That's the extent of my knowledge on that, but it would suggest that a move to a fees based system could easily be introduced, or no? The main obstacle would likely be the UK's populist govt I suppose.

After 2008 banks were given lots of liquidity to be able to make loans and they didn't. My guess is that if there were negative rates from the central banks, they'd shift this cost onto the consumer somehow and still not make new loans. Whether that's with maintenance fees or something else, I don't know. The interesting thing is that at that level and the quantities we're talking, banks can't hoard cash as they consider it too expensive to do so.

[SilverApe]

5 hours ago, sstrrs said:

I was going to mention what @SilverApe said about "real rates" and what @MancunianStacker said about fees to emulate negative rates.

…since we're mostly talking about the UK, wasn't there some kind of issue a while ago where retail banks actually didn't want any of the market share @Melon says they wouldn't want to give up? i.e. they didn't want to offer free current accounts to the masses but were kind of forced to by the govt as it was seen as an important public service? That's the extent of my knowledge on that, but it would suggest that a move to a fees based system could easily be introduced, or no? The main obstacle would likely be the UK's populist govt I suppose.

After 2008 banks were given lots of liquidity to be able to make loans and they didn't. My guess is that if there were negative rates from the central banks, they'd shift this cost onto the consumer somehow and still not make new loans. Whether that's with maintenance fees or something else, I don't know. The interesting thing is that at that level and the quantities we're talking, banks can't hoard cash as they consider it too expensive to do so.

Free public banking was debated in the HoC and it was viewed as a public service, hence no fees.

When banks hold cash it's worth noting that it's not cash per say but more of "cash equivalents" that might be short dated bonds gov or otherwise.

Also, I dont think anyone here has mentioned the chance if a bail-in instead of the BoE bail-out as before. That is far easier to do as deposits are owned by the bank already. The FSCS (I think) has a limit of 80k but who is to say that can't drop to 20k in a week?

 

[HerefordBullyun]

5 hours ago, SilverApe said:

Free public banking was debated in the HoC and it was viewed as a public service, hence no fees.

When banks hold cash it's worth noting that it's not cash per say but more of "cash equivalents" that might be short dated bonds gov or otherwise.

Also, I dont think anyone here has mentioned the chance if a bail-in instead of the BoE bail-out as before. That is far easier to do as deposits are owned by the bank already. The FSCS (I think) has a limit of 80k but who is to say that can't drop to 20k in a week?

 

Exactly. the banks could easily do that but 80k say in 10 years time wont get you more but less! as this continual debasement of fiat happens,

[sstrrs]

22 hours ago, SilverApe said:

Also, I dont think anyone here has mentioned the chance if a bail-in instead of the BoE bail-out as before. That is far easier to do as deposits are owned by the bank already. The FSCS (I think) has a limit of 80k but who is to say that can't drop to 20k in a week?

As far as I'm concerned, bail-ins are guaranteed as soon as there's a liquidity issue. They changed the law to make sure of it. But with there currently not being a liquidity problem, more of a money velocity problem, I wonder if bail-ins would stop at the bank level in the same way that we generally all think negative rates would stop at the bank level. i.e. central banks confiscating the bank's deposits in the central banks if they don't get rid of them with cheap loans. I can't see how it would happen, but again I think it would need to be done under a populist govt with the public cheering it on, a kind of reverse 2008 situation whether the avg person still manages to lose.

Also, I have no idea, but I'd bet the FSCS (or your country equiv.) doesn't cover any amount confiscated in a bail-in. They wouldn't even need to lower the limit. I doubt they left that loose end open.

[Martlet]

One thing sure to create a liquidity crisis would be include retail deposits in any bail-in. 

[SilverApe]

@sstrrs interesting point about central bank but Andrew Bailey of BoE wrote in The Times and Bloomberg that balance sheet normalisation is a goal and that guarantee of bailouts is not certain. That leads to the conclusion that bail in is more probable. If central bank opt for bank bail in with the banks themselves then I dont think it would be a policy as this is the norm. I sense Andrew bailey wants to get to a pre-2008 system.

Money velocity (or lack thereof) is to my mind a condition of aggregate demand. If a majority of consumers dont have the surplus spending then it won't translate into overall demand, hence spending, and thus money velocity. Given the wealth disparity the money velocity will only lower until more emphasis is placed on equitable taxation, higher monetary value on labour not capital, and deleveraging.

The central banks are attempting deleveraging and that isn't working out too well. I doubt fairer taxes and higher wages would be equally hard.

My bet is on uncontrolled inflation, bank bail in at retail level, and new monetary standard. The brown stuff has hit the fan before and human stupidity will ensure it will happen again.

 

 

 

 

[sstrrs]

@SilverApe good points, though for some reason I find it hard to imagine any central bank being able to do anything they say they want to do. If Andrew Bailey said the sky was blue, I'd be getting my eyes checked that same afternoon. I also can't imagine a world with equitable taxation, I can't even go about defining equitable taxation in a world where even high earners are debt ridden and all the currency is tied up in realms beyond ordinary folk's imagination being sloshed around for stock buy backs and other stuff that's all academic for people like us.

I honestly don't know which route the UK or most of the West is going to take towards hyperinflation, but in the US I can see the groundwork being laid for basic income modelled on the stimulus payments, and I would have never thought I'd see the US of all places lead the way on that. Maybe the rest of us will follow. If we don't then yes, liquidity crunch again, and bail-ins.

[SilverApe]

2 hours ago, sstrrs said:

@SilverApe good points, though for some reason I find it hard to imagine any central bank being able to do anything they say they want to do. If Andrew Bailey said the sky was blue, I'd be getting my eyes checked that same afternoon. I also can't imagine a world with equitable taxation, I can't even go about defining equitable taxation in a world where even high earners are debt ridden and all the currency is tied up in realms beyond ordinary folk's imagination being sloshed around for stock buy backs and other stuff that's all academic for people like us.

I honestly don't know which route the UK or most of the West is going to take towards hyperinflation, but in the US I can see the groundwork being laid for basic income modelled on the stimulus payments, and I would have never thought I'd see the US of all places lead the way on that. Maybe the rest of us will follow. If we don't then yes, liquidity crunch again, and bail-ins.

I think you have answered your own question. Central banks are untrusted, everyone is debt-ridden, and the ground work for basic income (helicopter money). All of this leads to the conclusion of the end of the monetary system, therefore the safety of metal as an intermediary product comes to play.

I agree that the BoE can't be trusted with what they say, but I think it will be hard to justifiy with the public, having to endure QE, low rates, corporate corruption (Wirecard), and then live through the con of austerity to be then told "ooops, we need more dough".

Out of curiosity what do you think will happen after the bail-ins? and do you think the new monetary system wil have gold as a denominator? 

 

edit: Link for you too https://www.fxstreet.com/news/gold-declining-real-rates-to-lift-the-yellow-metal-above-1800-tds-202006261322

[sstrrs]

1 hour ago, SilverApe said:

Out of curiosity what do you think will happen after the bail-ins? and do you think the new monetary system wil have gold as a denominator? 

I think the public are sufficiently stupid and weak that no, it won't. I do hope so, but honestly, something tells me they'll go to a centrally-controlled centrally-issued crypto token system to keep the game going, and it will feel sufficiently different that people will eat it up and the powers that be will get away with what they're doing for a decade or so more before that too unwinds.

It's a gut feeling, but also based on some history, which people really into predicting the reset keep telling us to look to. As far as I've seen in history, money debasement leads to a currency collapse where they issue a new debased currency and try to the same thing a few times until not just the currency collapses, but the civilization too.

If I'm wrong, it'll be because China suddenly backs their currency with gold. And if you play that out in your mind, the result could be war and so again, the civilization collapse.

[Melon]

You guys are going to be so disappointed when everything goes back to normal and the usual cycle resumes again 😄

[SilverApe]

18 hours ago, Melon said:

You guys are going to be so disappointed when everything goes back to normal and the usual cycle resumes again 😄

Ah, we have a disciple of The School of Wongernomics.

[5huggy]

22 hours ago, sstrrs said:

I think the public are sufficiently stupid and weak that no, it won't. I do hope so, but honestly, something tells me they'll go to a centrally-controlled centrally-issued crypto token system to keep the game going, and it will feel sufficiently different that people will eat it up and the powers that be will get away with what they're doing for a decade or so more before that too unwinds.

It's a gut feeling, but also based on some history, which people really into predicting the reset keep telling us to look to. As far as I've seen in history, money debasement leads to a currency collapse where they issue a new debased currency and try to the same thing a few times until not just the currency collapses, but the civilization too.

If I'm wrong, it'll be because China suddenly backs their currency with gold. And if you play that out in your mind, the result could be war and so again, the civilization collapse.

Here, here!

IMHO - - > > http://news.goldseek.com/GoldSeek/1593174269.php

[Melon]

3 hours ago, SilverApe said:

Ah, we have a disciple of The School of Wongernomics.

What's that? I did try to find out but my extensive research returned no results! 

[5huggy]

Hmm  might be spelling it wong! 😉🤣🤣🤣

https://www.wonga.com/

[SilverApe]

@Melon just a little private joke. There is a long thread on this forum started by @Wongerwho thinks that the gold price will fall longer term. I thought you might be in the same school of thought 

[Melon]

19 minutes ago, SilverApe said:

@Melon just a little private joke. There is a long thread on this forum started by @Wongerwho things that the gold price will fall longer term. I though you might be in the same school of thought 

Oh haha, I'm familiar with the thread now that you mention it. 

Yea personally I don't understand the point of gold or silver. Can't stand the stuff. I'm just here for the banter! 😄