Negative interest rates explained

in investing •  15 days ago 

This is a topic that has been talked about a lot but not a lot of people dig a little deeper so here is a small explanation of what the they are and what they mean:

Negative Interest

image.png

a small recap

It is something that is gathered a lot of attention but this phenomenon started in Sweden in 2009 as a result of the big crisis just before. The European Central Bank (ECB) followed in 2013 and this opened the floodgates to the rest of the world. It has gotten this "bad" that the average consumer now gets paid to take out a loan in Denmark.

Jyske Bank, Denmark’s third largest, has begun offering borrowers a 10-year deal at -0.5%, while another Danish bank, Nordea, says it will begin offering 20-year fixed-rate deals at 0% and a 30-year mortgage at 0.5%.

What are negative interest rates?

Normally when you go to the Bank and lend a 1000 (fill in currency here) at the end of the year you will have to pay back the bank 1000 + X interest
In the situation that we are in right now this has become inverted. Lend 1000 pay back 1000 - X interest

Now this is normally not for the regular Joe (except if we all move to Denmark) but more for banks, central banks and institutions amongst each other.

image.png

In the system we have borrowers and lenders.

Lenders transfer money to borrowers and get a bit more back in return (hopefully) after a certain determined period of time.
Now if there is an abundance of lenders and not enough borrowers then the interest that is being demanded will go down.
The central banks are the ones that try to balance the economic engine and aim to keep it going. To do that they have two main tools:

  • set the interest rates. In order to keep the sputtering engine going they are setting the interest rates at negative in so that the people / banks / institutions are willing to borrow money and take on a bit of risk. This is a policy to grease the engine even though it seems its long overdue for a checkup.
  • buying up assets like stocks (quantitative easing)

a solution?

There is a lot of talk about a possible upcoming recession and the big players are slowly taking out less and less risk even with the negative rates. This economic slowdown is traditionally a sign for the gold and silver price to rise... and this is just the case in the last few months the price has gone meteoric.
image.png

But now there are also the new alternatives like Bitcoin and the other cryptocurrencies.

It is the general view amongst more and more people that crypto is another hedge so keep hodling your Steem and other crypto...

are you prepared??

Authors get paid when people like you upvote their post.
If you enjoyed what you read here, create your account today and start earning FREE STEEM!
Sort Order:  

👍
~Smartsteem Curation Team

thanks for stopping by and the vote :-)

The upcoming recession that you talked about, is it for a country, continent or the whole world that will experience it

I guess the start will either be Japan or Europe and then the rest of the dominos will follow with the US being last (Venezuela and other SouthAmerican are already in hyperinflation, so is Turkey)
But its worldwide in my opinion

You got a 39.33% upvote from @ocdb courtesy of @felander!

@ocdb is a non-profit bidbot for whitelisted Steemians, current min bid is 2 SBD and max bid is 10 SBD and the equivalent amount in STEEM. Check our website https://thegoodwhales.io/ for the whitelist, queue and delegation info. Join our Discord channel for more information.

If you like what @ocd does, consider voting for ocd-witness through SteemConnect or on the Steemit Witnesses page. :)

Good post

Posted using Partiko Android

thanks

Hi @felander!

Your post was upvoted by @steem-ua, new Steem dApp, using UserAuthority for algorithmic post curation!
Your UA account score is currently 5.423 which ranks you at #667 across all Steem accounts.
Your rank has improved 7 places in the last three days (old rank 674).

In our last Algorithmic Curation Round, consisting of 147 contributions, your post is ranked at #80.

Evaluation of your UA score:
  • You've built up a nice network.
  • The readers like your work!
  • Try to work on user engagement: the more people that interact with you via the comments, the higher your UA score!

Feel free to join our @steem-ua Discord server