Sweden Cuts Deposit Rate to Negative 0.25%

http://globaleconomicanalysis.blogspot.com/2009/07/sweden-cuts-deposit-rate-to-negative-25.html

by gasull • 17 years ago

45 24 17 years ago

globaleconomicanalysis.blogspot.com

forinti• 17 years ago

I guess now is a good time to be a burglar, as people will be stuffing money into their mattresses.

tomjen• 17 years ago

Not really, as inflation is properly damaging more than this negative interest.

systems• 17 years ago

to fight inflation you raise interest rates, so that citizens spend less and save more.

by cutting interesting rates they are encouraging spending, and increasing inflation!

they can of course just move their saving elsewhere (another country) where rates are better! Which is what I would do, at least in the short term!

Tuna-Fish• 17 years ago

The very reason they did this is that inflation is currently negative -- that is, Sweden is suffering deflation. Money stuffed into a mattress appreciates in value as time passes.

pmorici2• 17 years ago

Can you explain how that is possible? In my understanding, if the interest rate is negative then the bank is, in other words, charging you a fee to keep your money there plus you are still taking a hit from inflation so at least if you take all your money out of the bank you are only taking the hit from inflation and not having to pay the bank a monthly fee to do so.

tybris• 17 years ago

Sweden's lost decade?

Yrlec• 17 years ago

The negative rate only applies for banks which store their money overnight at the Swedish Central bank (Riksbanken). The interest rate at peoples' bank accounts is stil positive. They do this to force the banks to lend the money they lend from the Riksbank, and not just keep it (to reduce the bank's liquidity risk).

It's stil very low though. Too low if you ask me, solving an economic crisis through inflation is just the same thing as forcing everyone to lower their salaries, but people don't understand that so it's easier to get away with it.

pj• 17 years ago

The same thing will happen in the United States. It's only a matter of time. It has been talked about plenty of times. It's interesting to see Sweden is actually being a leader in the financial markets.

anigbrowl• 17 years ago

I agree. I look forward to seeing how this is reported in the Economist which for several years insisted as a matter of fact that negative interest rates were impossible (I suspect this represented the view of one particularly dogmatic editor).

Eliezer2• 17 years ago

> solving an economic crisis through inflation is just the same thing as forcing everyone to lower their salaries

And debts, and bank accounts. If you look at it that way, it's sort of like compressing the part of the economy that doesn't consist of physical stuff.

brown• 17 years ago

This is a really interesting follow up to a great Atlantic article I saw a couple weeks ago:

http://www.theatlantic.com/doc/200907/ideas-tax

The general concept is that the only thing that should be taxed is behavior we don't want, which is unproductive assets. We should encourage people to work, so income tax is bad. We should encourage commerce, so sales tax is bad. We should encourage people to accumulate wealth, so basic property tax is bad. BUT, we should discourage unproductive assets, so we should tax them.

A negative deposit rate is essentially a tax on unproductive assets. Maybe this is the way of the future.

johnnybgoode2• 17 years ago

> unproductive assets

You mean savings? As in, we should discourage the key to long-term prosperity?

Eliezer2• 17 years ago

You're confusing savings (holding debts that someone else supposedly must pay, in this case, central bank debt) with investment.

lallysingh• 17 years ago

On a sidebar (I'm doing that a lot today on HN), pure savings are pretty unproductive, they'll lose value against inflation.

drawkbox2• 17 years ago

Inflation and a falling fiat currency are already part of the system to mobilize 'unproductive assets'. This propels wealth to invest. If it was just a gold based currency then there is no reason to invest (largely part of feudalism where hanging on to wealth makes more sense as population grows and wealth increases due to demand).

Inflation makes a dollar not invested is worth less than .96 cents. Investment for interest makes a dollar worth more than a dollar in a good investment like 1.04 at 4% interest.

Both interest and inflation encourage lending and investment rather than unproductive assets as you mention such as hoarding gold and doing nothing with it like the kings and queens of the feudal ages.

You are better off investing than holding onto money in a well devised economic system.

reedlaw• 17 years ago

Why wouldn't there be a reason to invest under a gold system? Why not the standard reason: a bigger return on investment?

In a well devised economic system you would do well if you saved and have the potential to do better if you invest. In our system you are forced to make risky investments or face the gradual loss of your wealth to inflation.

Sweden Cuts Deposit Rate to Negative 0.25%

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