Re:Federal Reserve slashes interest rates to zero
by csense on Sunday March 15, 2020 @06:52PM
(#22587574)
So people are willing to accept small negative rates if it would be less than the operational costs of shipping enormous truckloads of bills around, storing them, securing them, and insuring them against theft / fire? Is that's what's going on here?
Re:Federal Reserve slashes interest rates to zero
by dcftoapv on Sunday March 15, 2020 @06:58PM
(#22587635)
That's kind of the thought, yes. Negative rates should not be sustainable for any significant period of time and most interest rate models are built on that assumption.
Re:Federal Reserve slashes interest rates to zero
by dcftoapv on Sunday March 15, 2020 @10:26PM
(#22589167)
Sorry, I want to clarify quickly that appleiigs is right that it isn't cost of insuring cash so much as depository risk. When I say cash, I mean currency as opposed to debt/equity, not physical bills.
Turns out that assumption was wrong for a few reasons a) holding onto money is expensive b) in many cases banks have incentive to hold government securities c) sometimes they are outright required to hold government securities d) this is related to (a), but there is risk in holding onto cash where government debt is in many cases perceived as risk-free.
The thought today is that rates can go only slightly negative for short periods of time, which we will continue to believe until some government tries to push the lower bound again.