Comments on: From a negative OCR to negative interest rates …

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By: Free Credit Report Blogg

Free Credit Report Blogg — Fri, 24 Apr 2009 10:29:44 +0000

[...] TVHE » From a negative OCR to negative interest rates … [...]

By: Matt Nolan

Matt Nolan — Fri, 24 Apr 2009 01:15:43 +0000

@Miguel Sanchez

Well, they are sort of like QE – except you get some price signals.

QE is like a negative OCR in the same way that a increase in the standard OCR is like cutting the money supply …

By: Miguel Sanchez

Miguel Sanchez — Fri, 24 Apr 2009 01:13:35 +0000

@Matt Nolan But then what do the banks buy the bonds with, since they're presumably not attracting deposits? They'd have to get more and more of their funding from the central bank. This is the point I was getting towards in the previous discussion: negative interest rates are doable, but only in conjunction with quantitative easing; they're not a substitute.

By: Matt Nolan

Matt Nolan — Thu, 23 Apr 2009 23:48:48 +0000

@JD

But to what level – if the government dropped $100,000 into everyone’s lap, would we all keep it under our beds …

It doesn’t makes sense to say that we can’t make real interest rates negative – and if needs be we might be able to throw the money in by making nominal interest rates negative …

If that doesn’t work – the army owns helicopters, and our postal service still functions

By: JD

JD — Thu, 23 Apr 2009 23:45:19 +0000

I’d damn well put it under my bed.

By: Rate Rates Interest Credit | World News

Rate Rates Interest Credit | World News — Thu, 23 Apr 2009 23:42:14 +0000

[...] households don't want to accept a negative interest rate so they buy assets driving up asset [...] GilroyDispatch.com | Time to change the water district's familiar … GilroyDispatch.com – [...]

By: Matt Nolan

Matt Nolan — Thu, 23 Apr 2009 22:41:15 +0000

@Miguel Sanchez

Exactly – they do. They buy bonds and the such, pushing up the relative price. It works in the same way as the Fed coming out and directly buying bonds – except we get some idea of the type of risk households and banks are willing to take on

By: Miguel Sanchez

Miguel Sanchez — Thu, 23 Apr 2009 22:32:25 +0000

But if households really did have “other savings vehicles that will offer a positive rate of return”, it begs the question: why wouldn’t the banks be putting their money into the same vehicles?