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Negative Yields

2019-08-14 21:11:06.89715+00 by Dan Lyke 6 comments

Banks are paying people to borrow money. That’s alarming news for the global economy. (Mirror at MSN) (Via MeFi, with more examples of modern financial instruments that have negative yields)

“It’s an absurdly odd world and it signals two things,” said investment banker Daniel Alpert, managing partner at Westwood Capital. “There’s an obvious, persistent and continuous glut of underutilized capital and there’s no place in the advanced world for that capital to be invested without excess risk.”

Except for... Oh, I dunno... companies like WeWork and Uber?

I'm not sure if I understand economics, but I think money is a proxy for utility, or work accomplished that has value to other people. Money supply is an attempt to match the potential for utility, in the hopes that it will enable the exchanges necessary for the work that will accomplish that utility to be done.

As I read it, the money keeps flowing out from Central Banks which believe there is potential for utility, but to people who are tying it up in unproductive uses: high end real estate, art, yachts, etc. Indications are that there's this huge potentially productive potential out there, but somehow those ending up with the money aren't using it in that way; they're frittering it away in hopes of keeping it, rather than circulating it.

Seems like this imbalance will be solved by those who have the unrealized potential to be productive appropriating that money. Since it isn't happening voluntarily, that's gonna be ugly.

Later addition: How Monopolies Broke The Federal Reserve

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comments in ascending chronological order (reverse):

#Comment Re: Negative Yields made: 2019-08-16 10:54:57.716766+00 by: DaveP

The later addition seems the strongest bit to me, mostly because it shows that while there may be negative interest rates on savings, for the little guy, borrowing money via a credit card, the rate is nearly 20%. That’s a huge disconnect and shows that there’s something very broken in the markets.

#Comment Re: Negative Yields made: 2019-08-16 12:18:19.895678+00 by: TheSHAD0W

Don't conflate money with currency. Currency is only one form of money.

Money originally sprang up as an adjunct to barter, and government wasn't involved. *Any commodity* can be used as money; though of course some are more suited to the role than others. You want it to be durable, so it doesn't doesn't degrade over time, and you want it to be rare, so you don't have to carry very much of it. Precious metals were used widely; spices were also used. When Jesus received gifts of gold, frankincense and myrrh, those were all forms of money.

Then government (and sometimes private organizations) got involved, setting standards (largely so they could charge tax properly), minting coinage, etc. This is currency. This of course brought politics into things, resulting in all sorts of chicanery, debasing, etc. Government *wants* money to act like you described, to be stable, to be available, and of course to get themselves a benefit. This was curtailed by its also being a commodity, which added limits to how much they could "regulate" things.

So now we have "fiat currency", which is an entirely artificial commodity, to which government can apply whatever policies it wants. Political movements, powerful individuals, big companies as you've mentioned, all want their say in how money operates. The Federal Reserve system was fairly well constructed IMO, but is still run by people and is still subject to corruption and manipulation.

#Comment Re: Negative Yields made: 2019-08-17 21:50:27.331459+00 by: TheSHAD0W

BTW if you're interested in a discussion of the origins of money vs today's monetary systems, here's a free book for you:


#Comment Re: Negative Yields made: 2019-08-22 16:21:13.514448+00 by: Dan Lyke

I think I actually did mean money, over currency, using the commonly accepted economic definitions. The thing that appears to be happening, and what's causing whole new theories in economics to be developed, is that fiat currencies are behaving an awful lot like commodity backed currencies.

This is, of course, causing problems for all of the reasons we've moved away from commodity backed currencies. And causing things like negative interest rates (which weren't at all uncommon in the days of gold standards).

#Comment Re: Negative Yields made: 2019-08-22 21:49:48.278251+00 by: TheSHAD0W

> The thing that appears to be happening, and what's causing whole new theories in economics to be developed, is that fiat currencies are behaving an awful lot like commodity backed currencies.

So basically, you're calling out the Fed for not keeping short-term rates low, resulting in the inverted yield curve and a deflation. (Which is basically what Trump is saying.) I'm not so sure, I've been seeing prices on both staples and on luxury goods climbing. But it's a matter of argument, and there are indicators supporting both arguments.

Part of the problem is, like any fiat currency, it's easy to run the presses but difficult to pull excess currency out of the economy. If you look up "velocity" you'll see that a small amount of excess currency can lead to a lot of inflation.) So there's a need for the regulators to be conservative in printing more money.

#Comment Re: Negative Yields made: 2019-08-27 20:28:29.174299+00 by: Dan Lyke

Yeah, I think that's the thing: By any measure they haven't been conservative over the past decade or so, and yet we're apparently seeing anticipation of deflation. Even as costs of consumer goods rise.

Which kind of suggests there are disconnects in the economy between who's able to obtain money cheaply, and who's spending it.

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