Swiss National Bank Cuts Interest Rate To Minus 0.25%

[simonsaid]

They don't really hold much money. They hold a lot of zero's and one's that represent money. You may hold a piece of paper saying I.O.U a million pound. It doesn't mean you are going to get your million pound.

To try and explain what I mean.

Say four people are locked into a room and the only money in that room was £100. one person has a I.O.U of £1000 another may hold an I.O.U for £2000. and the other two may betweeen them have a debt of £3000. So long as the balance sheet balances The amount of money is irrelevant.

You said they don't lend out deposits.

Hence my OP.

[oracle]

Looks like he was correct. Supply side destruction in the oil industry must be horrendous at the moment, and to a lesser extent most other commodities. Any wiff of a genuine global recovery and prices are going to go ballistic.

no, just a bit of orchestrated middle eastern unrest by russia to cause a supply crunch.

the putin says...ok I got oil, but I want physical gold for it.(hence why germany and china have both been either hoarding or trying to repatriate theirs as fast as possible.)

US Says...not our problem, we got oil too.we don't need yours.

Edited December 19, 2014 by oracle

[erat_forte]

Don't view cash savings as a real thing. Year to year, the global economy saves nothing in actual fact apart from inventory. Inventory is finished production goods and raw materials available but not sold/consumed. The savings you are talking about are necessarily balanced by borrowings.

What good is inventory if its not going to be used? No good at all. Note that services cannot be part of inventory since services not consumed immediately go to waste as idle labour.

If there was suddenly no savings at all and no borrowings at all, we could recover instantly from that situation by parties X deciding to lend an amount S, and parties Y deciding to borrow amount B, where S=B. Now we have lots of "savings" again.

Stored up financial savings are not required for an economy to function except in so far as they drive capital concentrations to a level where societies resources can be focussed on particular things. Further, there is no guarantee that the focus of those savings is useful.

If there is too much savings S, then either B must rise match it or S must fall. Negative rates are about making S fall to match B, not the other way about.

What about skills, knowledge, training? Does't that count as a kind of saving?

[winkie]

What about skills, knowledge, training? Does't that count as a kind of saving?

Exactly, skills in saving money, doing it yourself or knowing a man/woman that can...sharing knowledge, training others, swapping skills, recycling...eroding savings only means thinking of new and better innovative ways of doing things for less so helping preserve what is still available not spending more.

[gf3]

What about skills, knowledge, training? Does't that count as a kind of saving?

No

[winkie]

No

You cut my grass or drive me to the station I will sew your curtains and bake you a cake.

[gf3]

You cut my grass or drive me to the station I will sew your curtains and bake you a cake.

[davidg]

Not if they think they won't get it back they won't. If the risk is losing 1% of the money then by lending it compared to only losing 0.25% then you park the money in the bank. To force lending the losses the bank will suffer need to be greater than losing the money that's parked.

To even be in this position demonstrates how fecked the global economy is.

That's true, all the SNB is doing is making it more expensive to park money.

To come back to the problem, people are selling roubles etc and buying CHF. Whether this is some Russian geezer on the streets of Moscow or a lot of numbers in a computer somewhere doesn't matter. There is an inflow of CHF to Swiss banks. In the 1970s a deposit tax was charged to calm this effect. Now the SNB is trying to persuade banks to recycle their deposits into other assets.

[Bloo Loo]

Banks don't lend out their deposits they lend out money out of thin air.

think about it second.

when a bank makes a loan....what is it they have done?

First, a person or other entity has asked the bank to lend them something....a balance of spending money.

The bank then agrees to hand or credit the borrower a number of money units and expects the borrower to repay them with interest. This is a special kind of contract and is called a loan.

The loan is a legal contract between the two parties...It is what makes the loan an asset on the banks books, and a liability on the borrowers books. It is thus because the lender which is receiving the loan repayments, its interest and therefore its profit, can sell the rights to receive the repayments including the profits to another entity.

Note, the loan is created without money.

Money, in the case of the loan, is used solely to finish the transaction, ie, it remains a means of exchange, Once the loan is created, the bank has to find money to hand to the borrower. Private banks do not create the money. Once transferred, the money itself can flow on elsewhere, but the loan contract remains. in order to complete the loan, it is now the borrower that has to find money to send the other way.

simple.

A central bank, that which issues money in a system these days, doesnt have to recieve money to settle its loan contracts. It can and does convert another liability, say a Government bond (loan) into currency. QE does this by charging no interest for the money by buying the bond, but normally the money is created in exchange for interest, ie the loan self extinguishes at maturity.

There is of course, a shortfall at the and of the loan. This would, as a whole, be a serious issue in a non growing economy, and it appears that 2% is the long term cost of creating money at the central banking end.

Therefore, we have this mystical 2% inflation rate the central banks are required to hit..this in theory keeps prices stable in banking speak...in actual fact, money value halves every 35 years, about the working life of people in the last half of the 20th century, so people tended not to notice, but were delighted to get their pay rises every year.

Theft by stealth.

And none of it is down to money itself....just the system surrounding it.

Edited December 19, 2014 by Bloo Loo

[winkie]

It is in the interest of some to want low interest rates, like others would prefer higher interest rates.....any action has many knock on effects either way. Plan ahead and see you can be quick to move and adaptable....pick the right side of the falling same coin.

Edit....to reflect the downward trend.

Edited December 19, 2014 by winkie

[interestrateripoff]

The Hedge Fund Known As The Swiss National Bank Posts A Record $23 Billion Loss, Down 4%, On EUR, AAPL, VRX

In a year in which the smartest money around the world failed to generate any profit, the hedge fund known as the SNB was likewise slammed, and earlier today, it announced in a preliminary report (the full results will be out on March 4) that it had suffered a CHF23 billion ($23.05 billion) loss in the past year, or about 4% of its assets under management. In retrospect, considering some of the double-digit losses recorded by the marquee hedge fund names, a 4% loss looks downright respectable by funds who "hedge" only in name.

[frederico]

That's what they get paid the big bucks for...

[interestrateripoff]

https://www.sovereignman.com/trends/you-know-negative-interest-rates-are-bad-when-18544/

Switzerland is famous for being punctual.

The trains. The buses. The meticulously crafted, hand polished luxury watches.

The Swiss are so culturally punctual that they even tend to pay their taxes well in advance of the filing deadline.

So it was quite a shock to hear this morning that the Swiss canton of Zug is asking its citizens to delay paying their taxes for as long as possible.

Why? Negative interest rates.

The cantonal government doesn’t want to take in a pile of cash, only to end up paying the bank interest on all the tax revenue.

Interest rates in Switzerland are among the lowest in the world; the official policy rate set by the Swiss National Bank is MINUS 0.75%.

Initially these negative interest rates only apply to banks; minus 0.75% is a wholesale rate pertaining to transactions among banks, and deposits they hold with the central bank.

But banks aren’t exactly charities.

So if a bank is paying interest to hold funds with the central bank, eventually they’re going to pass that cost on to the consumer. Even if that consumer is the government.

According to the Financial Times, the cantonal government of Zug estimates that they will save $2.5 million in negative interest rate charges by delaying tax receipts.

http://www.swissinfo.ch/eng/different-deadlines_swiss-taxman-says-delay-payments-to-beat-negative-interest-rates/41888668

Article here.