2014 May 22 Thursday
European Central Bank Plans Negative Rate On Deposits

Strange days have found us.

What Europe needs: A Versailles Treaty as a result of surrendering to Russia after, say, losing a war over the Baltic countries. The treaty would force them to pay punitive damages to Russia and they would have to borrow lots of money from the (created out of thin air) to do it. This would cause inflation. No worry about excessive bank deposits then.

Share |      By Randall Parker at 2014 May 22 08:11 PM 


Comments
Wolf-Dog said at May 22, 2014 11:48 PM:

Negative interest rates have their place, but these are used inefficiently. Currently the purpose of negative interests is a form of tax on the rich for the purpose of subsidizing the poor majority, but this has the effect of making the rich richer every year because all the money that is given to the poor is recovered by the rich within the same tax year since the poorer classes inevitably buy from the upper classes. An even worse side-effect of using this tax on the rich to primarily subsidize the lower classes is that the current environment leaves very little capital for the development of new innovative technologies in the hands of new small companies, adding to unemployment and stagnating the quality of life.

The proper way of using the negative interest rates that tax the rich, would be for the government to subsidize innovative technologies and the development of new small companies. Note carefully that in 2014 the Israeli unemployment rate is near historic lows (http://www.tradingeconomics.com/israel/unemployment-rate) because the government subsidizes new technologies and small companies despite the absolute certainty that 90 % of new companies go bankrupt in the long run: the reason this works is because the surviving 10 % of new businesses that have the real talent and backbone, end up hiring a lot of new workers, more than compensating for the failed businesses subsidized by the government. (And the money lost by the failing businesses goes to the winning companies that hire new workers anyway, but the advantage is that this is much better than just giving money to unemployed people that only perpetuates unemployment, although I agree that no unemployed person should be abandoned to starvation, but Israel also takes care of the poor better than the US, as the health care for the poor is free and much better than in the US.)

Wolf-Dog said at May 22, 2014 11:49 PM:

Negative interest rates have their place, but these are used inefficiently. Currently the purpose of negative interests is a form of tax on the rich for to subsidize the poor majority, but this has the effect of making the rich richer every year because all the money that is given to the poor is recovered by the rich within the same tax year since the poorer classes inevitably buy from the upper classes. An even worse side-effect of using this tax on the rich to primarily subsidize the lower classes is that the current environment leaves very little capital for the development of new innovative technologies in the hands of new small companies, adding to unemployment and stagnating the quality of life.

The proper way of using the negative interest rates that tax the rich, would be for the government to subsidize innovative technologies and the development of new small companies. Note carefully that in 2014 the Israeli unemployment rate is near historic lows (http://www.tradingeconomics.com/israel/unemployment-rate) because the government subsidizes new technologies and small companies despite the absolute certainty that 90 % of new companies go bankrupt in the long run: the reason this works is because the surviving 10 % of new businesses that have the real talent and backbone, end up hiring a lot of new workers, more than compensating for the failed businesses subsidized by the government. (And the money lost by the failing businesses goes to the winning companies that hire new workers anyway, but the advantage is that this is much better than just giving money to unemployed people that only perpetuates unemployment, although I agree that no unemployed person should be abandoned to starvation, but Israel also takes care of the poor better than the US, as the health care for the poor is free and much better than in the US.)


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