8 ms·

Denmark's Jyske Bank lowers its negative rates on deposits

80 points by klauslovgreen 7y ago

klauslovgreen 7y ago
What’s next?
- badlogic 7y ago
  A massive down turn.
  - Bombthecat 7y ago
    In five to six years...
lawn 7y ago
> In August, Jyske became the first to offer a negative rate on a home loan, in effect paying customers 0.5% to borrow money for 10 years. Surely this can't end well? Here in Sweden the house prices are so high in cities it's almost impossible for young people to get a house, sometimes even an apartment. We've been waiting for the housing bubble to pop a while, but how long must we wait? The longer we do the worse it'll be.
- alkonaut 7y ago
  Prices have been stagnant for some time now, and tighter restrictions on new loans hopefully reduces the number of people that would be under water if prices dropped 15 or 25%. It would have a pretty bad effect on the economy as a whole though. I’d manage, but would stop spending for years.
  - tom_mellior 7y ago
    > I’d manage, but would stop spending for years. If what happened, exactly? If you already "own" a home and are paying back a loan on it, a price drop of other housing units would not affect you in any way unless you felt that you needed to sell right at that moment. Would your payments rise from falling housing prices? Or your income decrease?
    - alkonaut 7y ago
      If prices dropped so my loan was 100% or 110% of the value, I’d try to get back to a reasonable level (85% say) as quickly as possible. This would require saving more and spending less than I’d otherwise do. Even if I have no plans on selling, you never know when you might be forced to sell (death, divorce, illness, work, ...).
- toxik 7y ago
  Call me cynical but I believe that this will not happen since the people in power are going to get hurt by such a correction. They will try their damned best to prevent it happening. The Swedish central bank (Riksbanken) has also stated as much, and the current policy is very much based on this.
- detritus 7y ago
  > We've been waiting for the housing bubble to pop a while, but how long must we wait? The longer we do the worse it'll be. As someone who moved to London far too long ago and has expected some miraculous drop in house prices every time the economy catches a sniffle - stop waiting. It'll never happen. I mean, it may do, but to all practical degrees, house prices will creep upwards forever. There's no 'right time' to get on the ladder, other than when you can actually afford. Now all I hope is that I get out of London before I get too bitter about not having simply bit the bullet a decade or so ago.
  - lawn 7y ago
    Just as an anecdote we moved away. Our friends moves to the city and buy houses for 10x what we bought ours for, and smaller ones too. Of course it's not possible for everyone and there are sacrifices with living in a small community as we do.
sword_smith 7y ago
When people borrow money for a house, they only consider the monthly payments for the mortgage and not the absolute amount of money they are borrowing. This means that low interest rates are the main reason behind surging house prices and is why people have to spend decades paying back loans and being vulnerable to a drop in house prices. It creates too much debt in society and generally makes the economy more fragile than it has to be. The low interest rates may seem like a helping hand to house buyers but it is in fact the opposite: a transfer of wealth to house owners from people seeking to enter the market, a transfer of wealth from the younger generations to the boomers. This must end if we want to avoid a repeat of the 2008 crisis. But with the current levels of government debt, it's hard to see a political solution.
- parasight 7y ago
  Honest question: how should people seeking to enter the market behave in such a situation?
  - sword_smith 7y ago
    I guess many people will not, and that this will lead to a higher rate of renting. That promotes economic inequality as the middle class is then prevented from entering an important way building savings: owning a house outright.
  - esotericn 7y ago
    I honestly don't know what the answer is. I've resorted to moving way out. I'm probably going to buy a house somewhere I can work remote from. I'm not paying 300K+ for a small home near a city with jobs, sorry, it's just not happening. Whether I can afford it or not is irrelevant, the value just isn't there other than as a proxy for "this now allows me to get higher paying jobs in the city and... continue the cycle?" I think this is something that really needs to be addressed from a climate perspective as well. It is cheaper, dramatically so, for me to live way out, buy a car, and use it for everything. I use an electric car, and I chuck a load of the savings into offsetting, and I'm pretty sure I'm negative. But a far better model would be if people just stopped the rent seeking bullshit and let me build close to town.
roenxi 7y ago
On the one hand this sounds eminently stupid. On the other hand, it means there is some sort of de-linking of money and time. Negative interest rates roughly imply that Denmark crowns have no ability to preserve wealth over time. If anyone gets paid in crowns they should attempt to spend them immediately and buy something durable. It is hard to see how this is an improvement over letting money hold value over time. Now there will be more competition over scarce real resources instead of wealthy savers holding a "fake resource" of cash in a bank account. And anyone who doesn't understand interest rates might lost out from confusion.
- flerchin 7y ago
  Doesn't it mean that the crowns are worth more over time (negative inflation)?
  - roenxi 7y ago
    Quite unlikely if they are following the current monetary trend. Negative interest rates are going to be matched with large amounts of monetary creation by the banks and central banks (note they are paying people to borrow money). If someone were to try that policy in an English speaking country I'd be very confident that the creation would outweigh the destruction and that there will be massive wealth transfers from people who have cash savings to people who borrow money. Denmark will probably go that way too.
  - dev_dull 7y ago
    No it’s he opposites! It increasing the pool of money and deflates its value. You are effectively encouraged to take out large loans.
- nabla9 7y ago
  You get it it backwards. Denmark is facing deflation, not inflation. Inflation in Denmark august 2019 - july 2019 was -0.39%. That is, the value of money is increasing.
  - roenxi 7y ago
vasco 7y ago
Other than spreading it around multiple banks, the natural outcome of this will be increased investment, most likely in real estate at one end of the spectrum and on the other things like money market funds, treasury bonds, and to a lesser extent index tracker style ETFs. If the trend spreads across other countries, and if you believe this is a trend that is hard to revert (falling interest rates), I'd say we're in for a few more years of the stock market climbing with bigger and bigger valuations at crazier revenue multiples. Even though lately it seems like everyone is predicting that a crash is right around the corner, I don't think it's likely without a big external event happening to disturb this trend. Either some cyber / regular war or some other event nobody is forseeing. The 2008 big short dude recently predicted that the inflows of money into ETFs by a lot of very passive investors is gonna create a situation where big valuations are based on nothing other than people not having any other place to put their savings, but I think like in 2008, his prediction is very early again. We'll see, interesting times ahead.
gridlockd 7y ago
Soon enough we may find out that too much is invested into the expectation that interest rates will go down indefinitely. When inflation finally strikes, there will be no tools left to fight it. Getting deeply into debt and buying as many assets as you can would then be the right thing to do. Obviously, this is not financial advice.
- JamisonM 7y ago
  Isn't the primary tool to fight inflation with an increase in interest rates? And if interest rates are negative doesn't that mean that there is lots of room to adjust them? It strikes me that the problem is that the tools to fight deflation are inadequate. How much growth and prosperity has been sacrificed to avoid the threat of inflation that never arose?
  - gridlockd 7y ago
    > And if interest rates are negative doesn't that mean that there is lots of room to adjust them? No, because the economy has already adapted to these low interest rates. All the money that was put into high-risk instruments at relatively low yields will be desperate to move into these "low risk" bonds, which causes a huge selloff, which will be especially disastrous to those who bought in on margin. Furthermore, those entities that have gotten used to financing old debt with ever cheaper new debt will have trouble finding new affordable debt. > It strikes me that the problem is that the tools to fight deflation are inadequate. What deflation? You mean the "deflation" of CPI staying below 2%? What about asset price inflation? > How much growth and prosperity has been sacrificed to avoid the threat of inflation that never arose? What real economic growth has been achieved by this unprecedented money-creation spree? Rising prices do not equal prosperity. What about Japan, or the Eurozone? They have even lower interest rates and they're once again stagnating. You really believe if money was even cheaper, even more growth could be achieved? We do have massive asset price inflation. We also have significant service-sector and rent price inflation. The CPI is only stable because productivity improvements have kept prices at bay for many consumer goods: https://perspectives.pictet.com/wp-content/uploads/2015/04/US_Inflation_21.04.2015_2.jpg https://perspectives.pictet.com/wp-content/uploads/2015/04/U... However, many of these consumer goods aren't made in the US. The dollar has been strong because, globally speaking, interest rates on it are high. If the US went back to QE and zero-interest, you could easily see a 25% drop in the value of the dollar, which immediately shows up as inflation for imported goods.
pcurve 7y ago
Why does the concept of paying people to borrow money sound eerily familiar.
JamisonM 7y ago
It strikes me that with an absurdly low debt-to-gdp ratio of 34% and negative interest rates maybe the Danish government should invest more money in their economy. Maybe leverage the market to build the enormous amount of green infrastructure they and the world needs, the returns don't need to be that high to pay off.
- dev_dull 7y ago
  Denmark has high oil and gas reserves, which partly is why their debt-to-gdp is so low. Why would they benefit in green energy infrastructure?
  - detaro 7y ago
    "high reserves" that according to Denmarks government after 2032 will not be able to cover Denmarks own oil consumption and likely be exhausted before 2050. Every barrel of oil they don't use now either delays that or brings them money to invest, and using the income now to prep for later seems like a sane strategy.
  - JamisonM 7y ago
    Because they identified the transition to green energy (grøn omstilling) as a strategic national goal almost 40 years ago and the policy is very popular. They can benefit from export revenue or make the moral choice to leave their reserves in the ground.
  - jVinc 7y ago
    > Why would they benefit in green energy infrastructure? The worlds largest Wind Turbine Manufacturer Vestas is danish. Besides them, there's lots of green energy infrastructures companies that are expanding. Also of note, the Large Danish companies LEGO and Novo Nordisk have already gone 100% CO2 neutral on productions through various offsetting initiatives[1]. Oil money is not something to flush down the toilet, but the country is moving very heavily in the green direction. The oil will dry up, or we'll reach a point where it's political suicide to keep going after it. But the wind will keep blowing and the sun will keep shining. [1] yes that's not enough, but a good milestone on the road forwards
benj111 7y ago
If I lower the interest rate it goes down, if I lower a negative rate it goes up? Either way, I was unsure which way rates had moved just from reading the title.
- levthedev 7y ago
  The interest rate on deposits was previously -0.6%, and now is -0.75%. Hope that clarifies if you were unsure.
pmontra 7y ago
Aren't negative interest rates equivalent to inflation? Both lower the value of savings. 2% inflation and 1% interest rate on savings is the same as 0% inflation and -1% interest rate. Even getting a -1% mortgage creates inflation, because who sells houses can ask somewhat higher prices and buyers will be able to pay them.
annamargot 7y ago
In a world with crypto currencies, would a frugal Dane be wise to put their cash into a cryptocurrency? I realize crypto is still seen as risky, however if it takes hold and overall market volatility stabilizes, how would easy access to borderless liquid digital assets affect the neg interest rate strategy? Edit: remove mention of specific cryptocurrency in an attempt to shift focus to broader strategy.
- levthedev 7y ago
  What is the advantage to buying Tether with Krones instead of just converting them to USD? I think people jump to crypto as a solution when oftentimes the financial markets have already had the same solution for hundreds of years (in this case, foreign exchange).
- lawn 7y ago
  With Tether you're essentially converting your cash into USD, but with massive risk added on top. Tether is, as stated by themselves, already not backed one-to-one by USD and you cannot actually redeem them, only trade them in exchanges. What you instead should ask what effect real cryptocurrencies like Bitcoin can have. I'm personally quite positive to cryptocurrencies, but I don't have a crystal ball. If a single country is about to go under of course it's a good alternative, but of the global economy tanks it's all up in the air.
jnordwick 7y ago
This is a really bad articles. The short term rates are not driving this. They don't drive long term rates because be short term rates are largely driven by technical considerations (eg the recent fed interventions in the overnight markets because of liquidity issues). I spoke to someone about this a while ago. These loans are often required by the government to message certain targets, and are meet positive for the banks because of other regulatory issues that may exist. These negative rates home loans wouldn't exist without some regulation various regulation and government incentives.

80 points by klauslovgreen 7y ago

klauslovgreen 7y ago

What’s next?

badlogic 7y ago
A massive down turn.
- Bombthecat 7y ago
  In five to six years...

lawn 7y ago

> In August, Jyske became the first to offer a negative rate on a home loan, in effect paying customers 0.5% to borrow money for 10 years. Surely this can't end well? Here in Sweden the house prices are so high in cities it's almost impossible for young people to get a house, sometimes even an apartment. We've been waiting for the housing bubble to pop a while, but how long must we wait? The longer we do the worse it'll be.

alkonaut 7y ago
Prices have been stagnant for some time now, and tighter restrictions on new loans hopefully reduces the number of people that would be under water if prices dropped 15 or 25%. It would have a pretty bad effect on the economy as a whole though. I’d manage, but would stop spending for years.
- tom_mellior 7y ago
  > I’d manage, but would stop spending for years. If what happened, exactly? If you already "own" a home and are paying back a loan on it, a price drop of other housing units would not affect you in any way unless you felt that you needed to sell right at that moment. Would your payments rise from falling housing prices? Or your income decrease?
  - alkonaut 7y ago
    If prices dropped so my loan was 100% or 110% of the value, I’d try to get back to a reasonable level (85% say) as quickly as possible. This would require saving more and spending less than I’d otherwise do. Even if I have no plans on selling, you never know when you might be forced to sell (death, divorce, illness, work, ...).
toxik 7y ago
Call me cynical but I believe that this will not happen since the people in power are going to get hurt by such a correction. They will try their damned best to prevent it happening. The Swedish central bank (Riksbanken) has also stated as much, and the current policy is very much based on this.
detritus 7y ago
> We've been waiting for the housing bubble to pop a while, but how long must we wait? The longer we do the worse it'll be. As someone who moved to London far too long ago and has expected some miraculous drop in house prices every time the economy catches a sniffle - stop waiting. It'll never happen. I mean, it may do, but to all practical degrees, house prices will creep upwards forever. There's no 'right time' to get on the ladder, other than when you can actually afford. Now all I hope is that I get out of London before I get too bitter about not having simply bit the bullet a decade or so ago.
- lawn 7y ago
  Just as an anecdote we moved away. Our friends moves to the city and buy houses for 10x what we bought ours for, and smaller ones too. Of course it's not possible for everyone and there are sacrifices with living in a small community as we do.

sword_smith 7y ago

When people borrow money for a house, they only consider the monthly payments for the mortgage and not the absolute amount of money they are borrowing. This means that low interest rates are the main reason behind surging house prices and is why people have to spend decades paying back loans and being vulnerable to a drop in house prices. It creates too much debt in society and generally makes the economy more fragile than it has to be. The low interest rates may seem like a helping hand to house buyers but it is in fact the opposite: a transfer of wealth to house owners from people seeking to enter the market, a transfer of wealth from the younger generations to the boomers. This must end if we want to avoid a repeat of the 2008 crisis. But with the current levels of government debt, it's hard to see a political solution.

parasight 7y ago
Honest question: how should people seeking to enter the market behave in such a situation?
- sword_smith 7y ago
  I guess many people will not, and that this will lead to a higher rate of renting. That promotes economic inequality as the middle class is then prevented from entering an important way building savings: owning a house outright.
- esotericn 7y ago
  I honestly don't know what the answer is. I've resorted to moving way out. I'm probably going to buy a house somewhere I can work remote from. I'm not paying 300K+ for a small home near a city with jobs, sorry, it's just not happening. Whether I can afford it or not is irrelevant, the value just isn't there other than as a proxy for "this now allows me to get higher paying jobs in the city and... continue the cycle?" I think this is something that really needs to be addressed from a climate perspective as well. It is cheaper, dramatically so, for me to live way out, buy a car, and use it for everything. I use an electric car, and I chuck a load of the savings into offsetting, and I'm pretty sure I'm negative. But a far better model would be if people just stopped the rent seeking bullshit and let me build close to town.

roenxi 7y ago

On the one hand this sounds eminently stupid. On the other hand, it means there is some sort of de-linking of money and time. Negative interest rates roughly imply that Denmark crowns have no ability to preserve wealth over time. If anyone gets paid in crowns they should attempt to spend them immediately and buy something durable. It is hard to see how this is an improvement over letting money hold value over time. Now there will be more competition over scarce real resources instead of wealthy savers holding a "fake resource" of cash in a bank account. And anyone who doesn't understand interest rates might lost out from confusion.

flerchin 7y ago
Doesn't it mean that the crowns are worth more over time (negative inflation)?
- roenxi 7y ago
  Quite unlikely if they are following the current monetary trend. Negative interest rates are going to be matched with large amounts of monetary creation by the banks and central banks (note they are paying people to borrow money). If someone were to try that policy in an English speaking country I'd be very confident that the creation would outweigh the destruction and that there will be massive wealth transfers from people who have cash savings to people who borrow money. Denmark will probably go that way too.
- dev_dull 7y ago
  No it’s he opposites! It increasing the pool of money and deflates its value. You are effectively encouraged to take out large loans.
nabla9 7y ago
You get it it backwards. Denmark is facing deflation, not inflation. Inflation in Denmark august 2019 - july 2019 was -0.39%. That is, the value of money is increasing.
- roenxi 7y ago

vasco 7y ago

Other than spreading it around multiple banks, the natural outcome of this will be increased investment, most likely in real estate at one end of the spectrum and on the other things like money market funds, treasury bonds, and to a lesser extent index tracker style ETFs. If the trend spreads across other countries, and if you believe this is a trend that is hard to revert (falling interest rates), I'd say we're in for a few more years of the stock market climbing with bigger and bigger valuations at crazier revenue multiples. Even though lately it seems like everyone is predicting that a crash is right around the corner, I don't think it's likely without a big external event happening to disturb this trend. Either some cyber / regular war or some other event nobody is forseeing. The 2008 big short dude recently predicted that the inflows of money into ETFs by a lot of very passive investors is gonna create a situation where big valuations are based on nothing other than people not having any other place to put their savings, but I think like in 2008, his prediction is very early again. We'll see, interesting times ahead.

gridlockd 7y ago

Soon enough we may find out that too much is invested into the expectation that interest rates will go down indefinitely. When inflation finally strikes, there will be no tools left to fight it. Getting deeply into debt and buying as many assets as you can would then be the right thing to do. Obviously, this is not financial advice.

JamisonM 7y ago
Isn't the primary tool to fight inflation with an increase in interest rates? And if interest rates are negative doesn't that mean that there is lots of room to adjust them? It strikes me that the problem is that the tools to fight deflation are inadequate. How much growth and prosperity has been sacrificed to avoid the threat of inflation that never arose?
- gridlockd 7y ago
  > And if interest rates are negative doesn't that mean that there is lots of room to adjust them? No, because the economy has already adapted to these low interest rates. All the money that was put into high-risk instruments at relatively low yields will be desperate to move into these "low risk" bonds, which causes a huge selloff, which will be especially disastrous to those who bought in on margin. Furthermore, those entities that have gotten used to financing old debt with ever cheaper new debt will have trouble finding new affordable debt. > It strikes me that the problem is that the tools to fight deflation are inadequate. What deflation? You mean the "deflation" of CPI staying below 2%? What about asset price inflation? > How much growth and prosperity has been sacrificed to avoid the threat of inflation that never arose? What real economic growth has been achieved by this unprecedented money-creation spree? Rising prices do not equal prosperity. What about Japan, or the Eurozone? They have even lower interest rates and they're once again stagnating. You really believe if money was even cheaper, even more growth could be achieved? We do have massive asset price inflation. We also have significant service-sector and rent price inflation. The CPI is only stable because productivity improvements have kept prices at bay for many consumer goods: https://perspectives.pictet.com/wp-content/uploads/2015/04/US_Inflation_21.04.2015_2.jpg https://perspectives.pictet.com/wp-content/uploads/2015/04/U... However, many of these consumer goods aren't made in the US. The dollar has been strong because, globally speaking, interest rates on it are high. If the US went back to QE and zero-interest, you could easily see a 25% drop in the value of the dollar, which immediately shows up as inflation for imported goods.

pcurve 7y ago

Why does the concept of paying people to borrow money sound eerily familiar.

JamisonM 7y ago

It strikes me that with an absurdly low debt-to-gdp ratio of 34% and negative interest rates maybe the Danish government should invest more money in their economy. Maybe leverage the market to build the enormous amount of green infrastructure they and the world needs, the returns don't need to be that high to pay off.

dev_dull 7y ago
Denmark has high oil and gas reserves, which partly is why their debt-to-gdp is so low. Why would they benefit in green energy infrastructure?
- detaro 7y ago
  "high reserves" that according to Denmarks government after 2032 will not be able to cover Denmarks own oil consumption and likely be exhausted before 2050. Every barrel of oil they don't use now either delays that or brings them money to invest, and using the income now to prep for later seems like a sane strategy.
- JamisonM 7y ago
  Because they identified the transition to green energy (grøn omstilling) as a strategic national goal almost 40 years ago and the policy is very popular. They can benefit from export revenue or make the moral choice to leave their reserves in the ground.
- jVinc 7y ago
  > Why would they benefit in green energy infrastructure? The worlds largest Wind Turbine Manufacturer Vestas is danish. Besides them, there's lots of green energy infrastructures companies that are expanding. Also of note, the Large Danish companies LEGO and Novo Nordisk have already gone 100% CO2 neutral on productions through various offsetting initiatives[1]. Oil money is not something to flush down the toilet, but the country is moving very heavily in the green direction. The oil will dry up, or we'll reach a point where it's political suicide to keep going after it. But the wind will keep blowing and the sun will keep shining. [1] yes that's not enough, but a good milestone on the road forwards

benj111 7y ago

If I lower the interest rate it goes down, if I lower a negative rate it goes up? Either way, I was unsure which way rates had moved just from reading the title.

levthedev 7y ago
The interest rate on deposits was previously -0.6%, and now is -0.75%. Hope that clarifies if you were unsure.

pmontra 7y ago

Aren't negative interest rates equivalent to inflation? Both lower the value of savings. 2% inflation and 1% interest rate on savings is the same as 0% inflation and -1% interest rate. Even getting a -1% mortgage creates inflation, because who sells houses can ask somewhat higher prices and buyers will be able to pay them.

annamargot 7y ago

In a world with crypto currencies, would a frugal Dane be wise to put their cash into a cryptocurrency? I realize crypto is still seen as risky, however if it takes hold and overall market volatility stabilizes, how would easy access to borderless liquid digital assets affect the neg interest rate strategy? Edit: remove mention of specific cryptocurrency in an attempt to shift focus to broader strategy.

levthedev 7y ago
What is the advantage to buying Tether with Krones instead of just converting them to USD? I think people jump to crypto as a solution when oftentimes the financial markets have already had the same solution for hundreds of years (in this case, foreign exchange).
lawn 7y ago
With Tether you're essentially converting your cash into USD, but with massive risk added on top. Tether is, as stated by themselves, already not backed one-to-one by USD and you cannot actually redeem them, only trade them in exchanges. What you instead should ask what effect real cryptocurrencies like Bitcoin can have. I'm personally quite positive to cryptocurrencies, but I don't have a crystal ball. If a single country is about to go under of course it's a good alternative, but of the global economy tanks it's all up in the air.

jnordwick 7y ago

This is a really bad articles. The short term rates are not driving this. They don't drive long term rates because be short term rates are largely driven by technical considerations (eg the recent fed interventions in the overnight markets because of liquidity issues). I spoke to someone about this a while ago. These loans are often required by the government to message certain targets, and are meet positive for the banks because of other regulatory issues that may exist. These negative rates home loans wouldn't exist without some regulation various regulation and government incentives.