If and when negative interests rates come to America, what do you plan to do?

Since this already has happened in Japan and in parts of Europe, with quite a few predicting it is going to happen to America, have any ideal what you plan to do?

I’m certainly going to pull out what little I got. Probably build another cabin in CO, only this time it will be as fireproof as possible. :slight_smile: Probably expand my little business with another part of it, then probably buy some gold, silver and other precious metals with what is left. I’ll bury it if I have to, no way will I lend money with a negative interest rate.

With now 394 billion dollars just being paid on interest on the deficit, and trillion dollar deficits predicted for every year now well into the future, I think it’s safe the government is going to do everything it can to keep rates ridiculously low or in the negative.

At age 61, I’m kind of wanting to start thinking about retiring permanently, stocks scare the geezus out of me and have about as much faith in them as I do interest rates.

Will there be others that keep it in the bank? For others that take it out, what do you think you’ll do?

Since I got damn near 100% of money in stocks if interest rates continue to fall I’ll keep money in stocks. Might refinance house.

At one point the United States banned ownership of silver and gold. If negative interest rates happened, Congress would pass a similar law. The US would copy what Greece did, and limit how much money could be removed from ATMs or bank accounts in general, prevent people from taking money outside of the country, stp printing $50 or $100 bills (or larger), etc.

But honestly, I get a bit upset when I see this topic. Too often it’s not a reasoned debate, but some paranoid anti-bank stuff. Low interest rates aren’t even good for banks.

At this age, you don’t want a lot of stocks, but low interest rates tend to increase stock values (whereas a savings account would be detrimental, and bonds would be worth very little). I’d say go with dividends; even if the principal shrinks, you’re still getting some kind of a payout. (I am not familiar with US tax law, though, so after-tax that might not be a good idea.)

I’m completely unused to the idea of having an emergency fund that costs me money. On the other hand, not having one is dumb.

Anything is possible, never a reason to have sharp edged debates what will happen. But, now something like a 1/3 of govt bonds worldwide yield less than zero, yet the govts that mainly issue these bonds, Japan and various European countries have generally not imposed any extraordinary laws about holding precious metals or cash*.

There’s now something like $16tril in negative yielding bonds in the world mainly because the great bulk of money is held by institutions and high net worth individuals for whom holding all their cash in currency is not feasible, whether legal or not. And, precious metals are not a substitute for cash in normal times**.

For people with little money or for a small % of the money of people with significant money, holding currency to avoid negative interest rates could be viable. But not enough for govt’s/central banks to worry that much that their negative rate policies are being undermined by people holding currency. Central bankers might like to plug the hole that currency represents for negative rate policies, and some economists have proposed it (or eliminating large bills at least, that also to counter currency’s use in illegal transactions). But it’s politically infeasible probably even in more statist/conformist oriented Europe and Japan, and certainly IMO would be in the US. The prohibition on holding gold in the US was enacted during an extreme crisis, negative rates per se aren’t a crisis, nor is the US anywhere near as unified nor govt held in anything like as high esteem across the spectrum now as then. That just won’t happen IMO, laws to limit cash or gold holding in the US just because rates are negative. However again the amount of currency is just not enough for that to matter all that much.***

Also I think even many people with relatively little money would realize if it came to it that there’s value in protecting your money from theft or loss even if you pay a small fee (negative interest rate) to do that. All your safe assets riding on nobody stealing your cash? Note that bank safe deposit boxes (which also charge fees of course) are not insured under FDIC like deposits are. The bank is not legally on the hook for losing the contents or theft unless you can prove willful conduct by the bank.

*Greece did this to ease the burden on local banks to come up with Euro’s to pay out of ATM’s, interest rates in Greece at the time were far from negative.
**arguably precious metals are a ‘safe’ asset when everything else including cash is going down the drain in real value, so I’m not saying nobody should ever have them, since it’s possible that could happen. But that’s not the situation in say Germany or Japan now. They have stable hard currencies but negative interest rates. Whereas gold and silver fluctuate all over the place in EUR and JPY terms: they are not real substitutes for cash.
***less then $2tril in US currency, most held outside the US in countries with unstable currencies and/or to facilitate illegal activity.

My understanding is that the idea with negative interest rates is to encourage people to spend money rather than hoarding it, so building a cabin in Colorado is exactly what they’re encouraging you to do.

I assume that with negative interest rates, prices will deflate. I will spare a moment to grieve for my pension people who cannot lower my pension, but only a moment.

That hasn’t been the case so far where negative nominal rates prevail. There hasn’t been any prolonged deflation in Europe: low positive inflation, negative nominal rates. IOW real rates (nominal rate-inflation) are even more negative.

A floor at zero adjustment on inflation indexed things can be valuable if there’s deflation. The same goes for US govt inflation indexed bonds: they are redeemed at the inflation adjusted value of the original face amount, but no less than the original face amount.

But the general expectation would be that negative nominal US rates, if that were to happen, would be accompanied by the Fed seeking all means to maintain positive inflation, and having at least partial success, if it follows the recent pattern elsewhere.

Enjoying the feedback from everyone. I agree that is what they are trying to do, get us to spend our money. But from what I’ve been reading, the average Joe and Jane in the US now doesn’t have that much in savings, anyhow. An appliance going out would be a huge setback to many.

Private sector still accounts for 70% of spending though, with most of the elderly also having most of the savings. For those that do, I’d be curious how many will be open to leaving it in there with a negative return each year. My guess most would pull it out, but don’t have any actual data from other countries that have already done this, not much time to research it for now. Also speculation on my part, but I’d also not sure that aging America would be interested in buying bigger homes or new cars, or other material goods at this stage in their life. Most of their dollars will be set aside for healthcare and paying their regular taxes and insurance. If they don’t invest in precious metals, they could still pull it out and sit on it, not putting the money back into circulation, at least it wouldn’t be giving them a negative return.

Another friend told me to look up Cyprus and what the government did to private citizens bank accounts and savings. They took up to 10% of it. Also, recently heard on the news that Trump is backing out of his promise not to cut SS, Medicare and Medicaid. This sort of thing, I don’t think is going to put anybody in a spending mood that is elderly. These are the sort of things that causes a run on banks. Big enough run, and there wouldn’t be not much money left to loan out.

Most experts agree the stimulus that was put into the American economy didn’t live up to the over-hyped projections, but just gave us a much larger deficit. Since the long term bond yield has inverted and giving less return than the shorter terms, it also shows investors have less confidence in the future.

Our choices are limited at my age. If young, your choices will be more. If it was me, I’d seriously think about another country entirely. I hope I’m wrong about what future generations are going to be up against and the amount of tax burden the average working class person is going to have in the US.

From what I’ve read, the negative returns being offered by the German central bank are well under one percent. Given that, what do people think they’ll do with their money if they do pull it out of circulation? Some talk about putting the money “under the mattress” but practically speaking what do they plan to do with the money? You could literally keep the money at home in the form of cash, but there are risks associated with that. (What if the money is stolen or is lost in a house fire or flood?) Given those risks, a small negative return doesn’t sound so bad to me. (And even now, if you’re just earning one or two percent in a bank account, you’re probably getting a negative return, when you take inflation into account.)

^^^
Specifically, they are probably planning on doing nothing with it, just to prevent a guaranteed loss the banks would surely give them.

An excellent way to store it is putting it in PVC pipes, no problem with fire, no chance of flooding, they seal up nicely, put in salt packages to help absorb the moisture, then burring it. I learned that from reading how drug smugglers hid their cash.

Inside the home is more risky, fire would be a concern, robbery another, it’s not the sort of thing I would be advertising I had done in person, only anonymously on the internet. Just tell a close family member or two, especially in case of death, where it was buried, and not have loose lips.

Negative interest rates sound bad. And they aren’t intended to influence low to moderate income holders. My guess is that if the US ever gets into negative interest rates, they will exempt the vast majority of people (your saving account at the bank will be allowed to remain at 0.01% like the good old days) just to keep the public noise down. For the people to whom this might have an impact, high net-worth investors and corporations, they have plenty of tools to get around such silly things as negative interest rates.

For instance, look at the municipal bond market. They routinely offer “premiums”. Investment houses like to have safe bonds paying high interest rates. So bond sellers (not the municipalities, their banks) simply offer cash up front to sell the bonds at a higher interest rate. The municipality can crow about their 2% bond, pocket several million $ in cash, then proceed to pay 4 or 4% interest on their bonds. The 2% assumes that the municipality keeps the premium money in the bank (earning that wonderful effectively negative interest rate) and uses it to pay back the bonds early. Guess how often that happens. :slight_smile: I am no expert, but such a simple dodge has become enshrined in state law and federal tax regulations it is so widespread. We can only imagine the creative ideas that float around the hedge funds and investment banks in Panama and Gurnsey.

Honestly, early redemption of muni bonds happen all the time. It’s most frequent in a falling rate environment, of course.

One of the things I do is sell muni bonds and it’s so frequent I spend a great deal of time making sure clients understand what ‘yield to call’ means so they’re not surprised when it happens in three years on a 20 year bond.

Are we really more at risk of interest rates going negative than we were in the Great Recession a decade ago? Because I’m starting from, since it didn’t happen then, you’ve got to show me why I should even consider the possibility now.

I’m not saying it will happen, but rates are starting from a much lower point than before the recession. In June, 2007, the 10-year rate was 5.26%. Now, it’s 1.52%. So, if something nasty happens, there’s not much room to cut. On the short end, the 3-month rate was 4.8% and now it’s 2.1%, again starting from a much lower point.

On top of that, the tax cuts and increased spending has blown a hole in the budget, with trillion dollar deficits expected, even though these are supposed to be good times, with low inflation and low unemployment, so there’s not as much room for monetary stimulus either.

Just to be clear, I’m not predicting negative rates in the US.

I’m already in a negative interest rate country. On paper I thought I might be able to take out a loan and be paid interest for doing so. But no banks seem to be doing that. :stuck_out_tongue: It shouldn’t effect your long-term plans.

Even if prime is negative, are banks actually going to be offering negative interest rates to consumers? I doubt it. They’ll keep doing what they’ve always done, which is charge fees to make up for the tiny, tiny amount they are paying in interest. Only people with massive savings will really be affected.

Of course that happens all the time in a falling interest rate environment. They are refinancing the bonds. And getting another premium.

I use that as simply one of the few examples of “creative” financing that I know about that makes the apparent or published interest rate a poor description of the actual cost of the loan. Same thing with mortgage points. Since the OP asked about the effects of negative interest rates, I am guessing that the effect will be minimal since there are many ways around the published interest rate. The obvious one is my example. If the central bank insists on -1% interest, then the selling bank simply provides a premium to make the interest rate in fact positive and everyone is happy.

I think the average consumer’s bank accounts already earn negative interest, in the form of fees. Most people, AFAIK, experience banks as service providers that charge fees, not as debtors that pay interest.

Does the average consumer really pay many bank fees? I think I paid an ATM fee like five years ago. Nothing else since then.

Overdraft fees, credit card debt, refinancing fees (typically thousands of dollars) and various service fees plus much more.

I don’t pay them but plenty of people do. I asked about refinancing my mortgage last week and got a real life honest person. I asked her if she would take any of the options being offered and said ‘No’.

Then she thanked me for my business and being financially savvy. A whole lot of people aren’t. Check cashing establishments and pawn shops exist in poor neighborhoods for a reason. Banks are a little better but the interest rate is huge if you take them up on some of their offers.