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Confounded

Negative Mortgage Rates Have Arrived! -- Merged

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we finally have perpetual wealth generation .. alchemy that was beyond the realms of the real world ...

So if I take a large enough mortgage where the negative rate is sufficient to cover my day to day living expenses, why should I work .. let the QE take the strain..

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savers who pay the bank to hold their cash courtesy of negative deposit rates, are directly funding the negative interest rate paid to those who wish to take out debt.

So they pay you to buy a house. Wow.

Edited by 200p

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If you can fix it for 25 years, I'll have a baziillion! ;)

First borrower to get that on a 25 year fix wins capitalism. Gotta wonder about supply/demand reality of scenario where lenders pays borrowers to buy a thing that's been financialised as a credit leveraged yielding asset.

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But we had negative mortgage rates in Britain when they dropped rates to 0.5 and people were on trackers, or we would have if banks were allowed to pay people to have mortgages.

Edited by Samboy

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First borrower to get that on a 25 year fix wins capitalism. Gotta wonder about supply/demand reality of scenario where lenders pays borrowers to buy a thing that's been financialised as a credit leveraged yielding asset.

So it's all about keeping asset price high (i.e.. houses), nothing else going on in there?

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200P wow they had 400% rise in 10 years, can see why they are needing to pay people to buy at these prices. And to be fair it stops the collapse many of us where talking about in 2008 I guess it is a good thing. I have always told my DAd if they lend at 0% I would buy a mansion. Looks like I may have to do it.....

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Sorry missed that! Nah, fair doos, When did you start that thread (and I hated you for it.). :D

My first post on negative rates was in the comments section Mish's global economic analysis blog in 2008. He replied in person to state I was insane.

My first post on HPC was probably in 2010 on this particular subject. Can't exactly remember.

What I can remember is that I am the original NIRP man.

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So it's all about keeping asset price high (i.e.. houses), nothing else going on in there?

Significant proportion of danish mortgages are IO and inflation is near zero not helping out real debt burdens. If it arises from such low real credit demand that lenders have to try bribing borrowers against the tide and/or household finances so bad that lenders have to pay running IO costs and/or lenders choose not to buy them themselves to let out - then something about assumptions of housing markets, longer-term prices/returns looking a bit broken.

I can't think of a creditor-positive rationale for a negative rate beyond desperation, so I can't see how negative mortgages and yields are a long-term positive for yielding assets, particularly if representative of underlying credit trends (deflation). Certainly not in terms of an 'investment'. It's a bank, creditor and rentier killer.

Still not fully got my head around this so I'm waffling while thinking - over to Scepticus really - but maybe it's about time.

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I can't think of a creditor-positive rationale for a negative rate beyond desperation, so I can't see how negative mortgages and yields are a long-term positive for yielding assets, particularly if representative of underlying credit trends (deflation). Certainly not in terms of an 'investment'. It's a bank, creditor and rentier killer.

Still not fully got my head around this so I'm waffling while thinking - over to Scepticus really - but maybe it's about time.

I think that's 100% correct.

+ve rates: rich get richer

-ve rates: rich get poorer

Question is, what happens to the poor when the rich get poorer. That is the key policy question.

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Significant proportion of danish mortgages are IO and inflation is near zero not helping out real debt burdens. If it arises from such low real credit demand that lenders have to try bribing borrowers against the tide and/or household finances so bad that lenders have to pay running IO costs and/or lenders choose not to buy them themselves to let out - then something about assumptions of housing markets, longer-term prices/returns looking a bit broken.

I can't think of a creditor-positive rationale for a negative rate beyond desperation, so I can't see how negative mortgages and yields are a long-term positive for yielding assets, particularly if representative of underlying credit trends (deflation). Certainly not in terms of an 'investment'. It's a bank, creditor and rentier killer.

Still not fully got my head around this so I'm waffling while thinking - over to Scepticus really - but maybe it's about time.

That makes 2 of us! I can't work out why, in a 0% rate and inflation world, my rent is still going up?

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That makes 2 of us! I can't work out why, in a 0% rate and inflation world, my rent is still going up?

Depends how long its being going up for and where you live. And inflation isn't actually at 0 yet.

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My first post on negative rates was in the comments section Mish's global economic analysis blog in 2008. He replied in person to state I was insane.

My first post on HPC was probably in 2010 on this particular subject. Can't exactly remember.

What I can remember is that I am the original NIRP man.

More a case of rediscovery, surely?

The idea of making money earn a negative return is not entirely new. In the late 19th century, the German economist Silvio Gesell argued for a tax on holding money. He was concerned that during times of financial stress, people hoard money rather than lend it. John Maynard Keynes approvingly cited the idea of a carrying tax on money. With banks now holding substantial excess reserves, Gesell’s concern about cash hoarding suddenly seems very modern.

http://www.nytimes.com/2009/04/19/business/economy/19view.html?_r=0

A number of economists have suggested that, using calculations based on variations of the Taylor rule (a rule that makes the official policy rate an increasing function of the output gap and of the excess of actual or expected inflation over target inflation) and ignoring the zero lower bound, the official policy rate in the US early in 2009 should have been as low as minus 5 percent or even minus 7.5 percent.1

1. The minus 7.5 percent figure was suggested in March 2009 as a level of the Federal Funds target rate that could be required by the end of 2009, by Laurence Meyer, a former Fed Board member, now vice chairman
of Macroeconomic Advisers, in a note to clients. The minus five percent figure was widely reported in April 2009, as the product of internal analysis prepared by Fed staff for the Federal Reserve's last policy meeting (see e.g. Financial Times (2009) and Taylor (2009b)
The literature on negative nominal interest rates is limited. There is the notable work by Silvio Gesell (1916) and the Great Depression-era writings of Robert Eisler (1932) and Irving Fisher (1933). In the ‘modern era’, only Robert Hall has repeatedly addressed issues close to the ones considered in this paper (Hall (1983, 1997, 2002), Hall and Woodward (2009)).

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