How do negative interest rates work? | CNBC Explains
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- Опубліковано 24 чер 2020
- One of the tools being discussed as a way to deal with the economic damage of the coronavirus pandemic is negative interest rates. CNBC’s Tom Chitty looks at whether we’ll ever be paid to borrow money.
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#CNBC #InterestRates #Economy
Q: How do negative interest rates work?
A: They don’t.
so very nicely explained. wanted to learn about this , couldn't find a video that explains so well. needed this for exam preparation !!! big thanks !
Love how you do these videos in the financial capital of the world :)
Most concise description about negative rate and its effect.
Thank you for great video, very helpful.
An excellent educational video! Keep up the good work
Federal reserve or central bank is not a government bank. it's completely private. what a stupid video
I really wish he explained in further detail why pushing the lever too far and having too large of a negative interest rate would put pressure on the banks and cause them to lend less. He merely stated that and then moved on
It's roughly because the bank's would see the opportunity cost. At some point, keeping money saved in their vaults is better than lending it out and getting minimal profits because of the low lending rates.
Sounds great to me. Give me a 30 year mortgage and pay me interest.
Would they drop your rate automatic.
Sure thing, also we are going to charge you negative rates on deposits at the bank
Not exactly. the average interest for a 30-year fixed mortgage is 3.03% while the average inflation rate over the last 20 years is 1.8% and with adding the house affecting you will accentually get money for buying it.
Heaven on earth 😂
You know the interest rate isn't -100%, right? 😂
1:37 those cherries could rot if they're not sold
Not enough is done by governments to increase productivity.
This is right answer, productivity increases GDP but most of this money is spent on real estate, which is not productive hence money is pooring into useless assets that don't contribute towards the economy other than increase cost of living. That is why China, India, or developing nation's are raising so quickly. They put their money into factories, producing goods faster than we do for cheap hence why we have major cash out flows. But the cash is not flowing as fast due to all it sitting on real estate.
If the negative rates lever is pushed too far does it risk creating bad quality loans? Should we expect defaults and size of the defaults to increase?
That's the reason why European countries have external debt around 150% of their GDP
1:27 Why does the background music sound so familiar to me
THX TMC very happy to learn how the moment will work closely for digital Curency
How can we take a loan for 0% interest?
What does this mean for people who have existing debts ?
they work by having small fine print disclaimers for you to sign.
Inflationary for wall street but deflationary and theft for you
Its a good thing if that would ever happen but it would be a big risk for lenders to put their cash out in the market not knowing if the borrower has the capacity to for that loan but on the other hand that will be a big boost to the economy
Short term boost for long term pain, people already forgot the pains of 2008. History repeats itself, next time might be in a bigger way.
This is the first time I heard about this stuff. Thanks for sharing the knowledge.
'They don't'...there just saved you guys 5 minutes
But the saving's is not passed on to you.
On -1% interest, they are charging you 5% So they make 4% in profit. They are still making billions in profit.
What if the solution is not related to the act of buying? What if our happiness is not related to how much spending we do? Sometimes the problem is existential and not related to the economy
lol he’s just tryna teach us about interest rates, chill out.
So how’s it work for a normal person taking out a loan or a mortgage ? Also will it increase the value of our money or reduce? I’m thinking increase because inflation decreases the value of our money..
Why in the world would any one like to see their savings shrink. And also it is hard to hold on to cash.
Bsdk Indian hoke savings nhi krta
@@Fit_foodiebachelor wtf he is saying he's saved
Not for the average person. Its for large financial institutions.
You don’t want them to shrink, but they already do. Inflation already causes people to consume the money they earn, which drives the economy
So, why would I keep my money in the bank, if the bank charges money, for me to keep it there?
This is not sustainable. I wonder how this will turn out, probably very bad for the poor people of the world.
isnt that always the case?
just start the money printer, it go brrrr make money easy
The Value goes down like brrrrrrrr
@@028TuvaluanHero True... Worst deffect of deficit financing
Zimbabwe: *stonks*
Paying the -25trillion dollar deficit as investor I'm selling 90000 shares for the asking prices of $800,000,000 per shares now what was tweny five trillion dollar debt.
Doesn’t sound good to me
That’s why when ur parents told u ur over spending tell them ur helping the economy! Haha 😂
why do the people put their money in to banks if they are not going to get interest whereas they would have to pay interest due to the negative interest rates?
For safety of our money.
Does this mean cash ban as well
Essentially a desperate measure, it really doesn't help anyone. Only large institutions will park their money in negative interest territory for convenience sake. It will not help the retail market . The economy will instead respond to positive sentiments as also fundamentals.
Again came up with good video.
Will the US ever go to a negative interest rate? I doubt it but just thought I'd ask :)
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We’re all so fucked
And if developed countries are so desperate for growth they could always lend their money to Developing countries private sector to private sector approach
That's what Japan does.
$26.5 TRILLIONS DOLLAR US DEBT AND RAISING AT THE SPEED OF LIGHT !!! AT CURRENT RAISING RATE IN 4 MORE YEARS IT WILL GO TO $45 TRILLIONS ..... CRAZY UHUUU !!!!
i- why was i subbed lol
With negative interest rates, I might go out and buy a house immediately.
That scene at 3:17 seems inappropriate. Good thing it was very brief.
How is it "inappropriate"? It's two builders at work.
@@kozlorog you, sir, are obviously not immature as I am! 😛 Seriously, it’s been so long, I had to watch it twice, then pause it right away the 2nd time for me to remember.
they need to finance someone like me, the REAL job creator
I wish to take more loan - as this time we get money cheaper
INTERVIEWER:Define negative interest rate.
ME:Its a scenario where bankers pull money out of hardworking savers ass with bare hands because he chose to keep money in the savings bank account.
Try index funds
@@dimitrismavridis2179 So that some Wall Street sickos can hone their skill at pump and dump?
@@superblyrandom9630 how many times have the Dow or S&P 500 been dumped?
Let’s be clear here , the idea of negative rates aren’t something to be proud of. It’s the systems ( government, central banks ) Constant involvement in trying to keep itself and its people happy and looking good with ever higher asset prices. So basically governments and central banks go to far resulting in assets prices and economies looking better than what they really are. Asset prices and economies are set on how much people earn. If anyone were to encourage things differently you are basically creating a bubble. A one way direction that has a end in which time would need to be reset. Negative interest rates aren’t a new norm , they’re a mistake kicking the can down the road in the hope things will improve without a crash and reset. So basically go flat for decades why’ll debt slowly gets payed down and wages climb or a crash, reset, and learn by your mistakes. Of course greed is in as all so forget will take over learning. Countries try more immigration and allowing more foreign buyers, ever lower interest rates etc etc . But they just make a false economy and a lie and once again there’ll be a end but 10x worse
Negative interest rates might be around for a while
Charging people to store money in a bank will cause a run when they have exhausted the 3% in paper £, the bank will fail. 💣💥
Don't worry, the banks will be full of confetti, the printers at the Fed will make sure of it. :)
Attempt to make the stocks don't fall below a certain level to save a stock market crash but it would have no impact on increasing demand and boost the real economy
>How do negative interest rates work?
They Don`t. (mic drop)
My first thought: Isn't a low inflation level exactly what you want? Economic growth is often the result of population growth, which has been strong since after WWII, because all the lives lost in the war left a void to be filled. What if the reason we grow less is because land and resources are close to maxed out? Trying to force growth by manipulating interest rates is then a foolish approach.
A stable rate of inflation is exactly what you want. The federal reserve aims for around 2-3% a year. This is to incentivise investment and spending.
It's a fine line, on one hand you have deflation, where people hoard money and the economy slows to a halt, or hyperinflation where money loses all it's value and the economy tanks in days.
@@zachb1706 The way I see it, zero inflation is the best. Then there's no incentive to hoard money, but you also don't see your money evaporating so you're not feeling rushed to spend immediately. This means you can save for bigger items and make better decisions. You're not just going to save for its own sake. You save to make bigger purchases without loans, for emergencies, and to survive between jobs.
@@qwertyuiop-cu2ve forgetting the impossibility of 0 inflation, there are other issues with it. For one, it would incentvise hoarding money. Saving is a form of hoarding, and it leads to economic stagnation. Look at Japan for example, they have an incredibly low inflation rate. It has wrecked their economy. With people saving, instead of investing or spending, the economy just stops.
@@zachb1706 Only deflation incentivizes hoarding money because in that case the money appreciates in value. In the short term, inflation incentivizes people to spend their money faster and deplete their savings. Short term, saving leads to decreased spending, yes.
But this is not a long term strategy. Long term, savings act as a buffer, with on average the same amount going in as is going out.
If people have little to no savings, this stimulates more borrowing, which only makes the banks rich at the expense of average Joe and Jane.
Why would anyone put money in bank and pay interest to the banks as well
I can see this causing Bank Runs.
I hope Canada and the US don't go to negative rates.
It does not work ... at least in the Long term ... how did we get here to even consider nominally penalizing capital accumulation (savers)? ... this is going to encourage a lot of misallocation of Investments ...
A real bank.. FYI..;)
Negative interest rate is a desperate move a government does to boost the economy However, the negatives interest rate doesn't guarantee the economy will revive again. You can see from the EU example. The economy is still depressing, not as good as the America or Asian countries. The influx of the Chinese products hit hard on its local business. Many manufacturing plants and shops struggle to survive.
They r charging too much on credit cards? Greedy as ever
I won't put my money in bank if govt do not force me to put.
You can't have both at a time, a digital economy and negative interest rates.
7 months too late guys.. seriously. Start paying attention to austrian economists, they are LIGHT YEARS ahead of you
Que_Rico Mises, rothbard, to some extend Hayek. For current ones, Tom woods, bob Murphy - they have podcasts where you could learn a ton.
pfft
False information. The restaurants aren't forcibly closed down but the prohibition of group gathering restricted the number of people who gather in public places, including restaurants. At first, it restricted gathering of more than 4 people, then 8 people, now 50 people. How could the restaurants not affected when gathering of more than 4 people weren't allowed?
They don't work. Bad Idea! Better to implement some form of debt forgiveness.
Interest rates will never go negative in America it will destroy the fabric of the economy
They don’t work
It's a joke.. Negative interest rates r unnatural.. This will not only ruin markets but also promote illegal activities.. What a shame
won't the negative interest encourage bad actors?
You pay me to take your money?
Just like any bank...
It doesnt encourage people to save which is what our country already has a problem of encouragement
we better start spending
More on consumption.less on investment
@@laxman6871 if consumption doesn't grow for a certain amount.. Investments will go in flau..
Tao!
Eek. I think these are coming .... :( As a saver I am sad
Negative interest rates is the destruction of the value of time
Central banks are the curse of the monitary system.
I'm an idiot, I stopped and restart this video from the halfway mark trying to wrap my head around the explanation... the answer is it just it doesn't work lol should of let the video play
Change your personal money to Bitcoin and Ethereum people.
Something interesting comes to mind:
💡
Let's say you take out a loan at a -1% rate for a term of some where about 100 years (better start doing some push ups now).
💯
The Lender will have paid out interest to you each year.
%
And, at the end of the term, there will be NO Principle due!
🤑
Sounds pretty good, eh?
😉
(I can't imagine why the governments would issue such loans? )
💸
I personally think private institutions will not be willing to lend at such long terms considering they will be the one paying for your mortgage at the end (technically). If not, private banks can also set the interest rate for a 100 year mortgage to be more positive than a 10 year mortgage to prevent such incidents.
@@jonathannicholasyap7886 If there are not better returns for a given amount of risk, they would minimize losses for a given amount of risk, let's say a currency is eroding . So, an institutional investor would purchase a negative interest rate bond to protect principal from eroding further for example (perhaps they're not willing to go long in a investment at a particular time). Perhaps it's indicative of dramatic change approaching.
@@jonathannicholasyap7886 Oops! Pardon me! I just watched a video on the Eurozone, and apparently I got it reversed.
The ECB is issuing the loans to private sector entities. So, the government is paying the borrowers interest to take out loans, to remedy the companies solvency issues.
Sorreeeee!
(It's just that I'd also in earlier times read about government charging a premium on government bonds, thereby charging interest to lenders for principle security instead of lenders purchasing discounted bonds like normally.)
My! Times are a'changin'!
📈📉
@@MartinUToob I get your point. As far as I know, negative interest rate functions as a discouragement for investors to purchase bonds and I think it would be more profitable for investors to put funds in developing markets with growing economy instead of purchasing bonds, bank deposits, etc as their value would simply be swallowed by inflation. I dont know how gold and commodities will act in this situation. Again, I am no expert so I would really appreciate someone who can explain what will be the best investment in a negative interest economy.
Buy Bitcoin 💛
"negative interest rates", except on credit cards...
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Reason to invest more into decentralized currencies that runs on blockchain network.
Everyone would just hoard cash and the banks would have no money to lend
I'd like to take all my money out of my account please. Oh yeah, I'd like to take out a loan too. I just saw a Lambo that I want.
You're richer than you think
Tax on your savings, buy gold, silver.
/ REAL ESTATE
not enough info on how it really been working in the real world. lol
Negative interest rates - one of the worst ideas to come out of Capitalism. Who the heck's gonna buy government debt in short term bills when they have to PAY interest on TOP of the purchase??🤨
The video is misleading, you wont earn money by taking loan from the bank.
& everybody vilifies Trump’s economic growth policies!?
Wrong opposite is not always right. It will not work.
Sounds dangerous.
That's simple - it never works lollll
People spend too much = higher interest rates = saving money = stable economy. People spend too low = lower interest rates = spending more money = stable economy + economic growth/boost
country spend too much and then you get USA situation.
Go digibyte
interest is evil
Usa financial crisis is coming. Remember year 2000 and year 2008?
wealth tax
This arrangement may help economy for short or medium term but in long run this will put pressure on Banks and the recovery support from central bank will disappear, which may led to serious to very serious inflation problem and take world to further deep recession.
Does anyone else realize the intelligence going into the videos on this channel? SO DEEP
Bitcoin is the only solution
You are right.
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Spoiler: it doesn't work
Central banks take central stage
Sounds good to the normal joe. Wealth holds money finally starting to flow back into society. Negative rates should happen more often.
Lol. Better get into Gold now before the rich with money do.
Buy btc learn how to yield farm!
@@airborneosborne4215 yup and once that fiat goes to zero there will be a new monetary metric system ....like it or not